Refund of real-estate tax – Mind the filing deadline 31st March!

Loss of rent revenue resulting from vacancies reduces the return on any real estate investment. Especially in times of COVID 19 such vacancies are a possible scenario. In addition to the already painful rent losses, operating costs that could otherwise be recharged to the tenant must be borne in full by the asset owner. Additionally, due to permanently increasing tax-rates, real-estate tax is developing to a significant cost-factor for both, tenants and property owners, here particularly in case of vacancies. Real estate lessors whose property is vacant for a longer period can reclaim a part of their paid real-estate tax.

This article is to illustrate the application procedure and to remind property owners of the filing-deadline 31st March.

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FYB 2021 Real Estate Tax Compliance – recent developments

In FYB 2018 we reported last on current focus points in company tax audits. A lot has happened since then, not only in terms of case law, but also in legislation. Some of the keywords here would be “ATAD” and “DAC6”, whose impacts will certainly be noticeable far beyond the turn of the year 2020/2021. In this contribution, we will once again present some current topics from our real estate practice and recommend some actions, if possible.

We had to make a selection, of course, so that other perennial issues such as the temporary reduction of the value added tax needed to be left out for lack of space.

 

 

 

 

 

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Link to LM Audit & Tax GmbH at FYB

Author:

Thomas Jäger,
Tax Advisor, Managing Director, LM Audit & Tax GmbH, München

 

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Tax Compliance Management System (Tax CMS) – How to avoid prison and fine. Case Studies for Private Equity and Real Estate

The initiation of criminal tax proceedings by German tax offices, mostly as a result of innocent mistakes, according to the motto “shoot first, ask questions later” is by now common practice, which some managing directors have already experienced painfully at first hand. The core question here is usually the demarcation between simple error correction on the one hand and (actually undesirable) punitive voluntary declaration on the other.

On 23 May 2016, the Federal Ministry of Finance issued a Decree on the Application of the Fiscal Code (AEAO) regarding Section 153 on the question of the delimitation of the declaration of rectification pursuant to Section 153 AO and voluntary disclosure pursuant to Section 371 AO. Paragraph 2.6 states: “If the taxpayer has set up an internal control system which serves to fulfil tax obligations, this may be an indication that there is no intention or negligence, but this does not exempt the taxpayer from examining the individual case in question”. The message to the legal representatives of companies is that a coherent tax compliance management system (CMS) serves to avoid allegations of organisational failure and thus significantly reduces the probability of the initiation of criminal tax investigations. Part I of following paper will present the history and necessity of a tax CMS. Parts II and III then present case studies from our daily consulting work. In Part IV, we share practical experiences in setting up tax compliance systems.

 

 

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Link to LM Audit & Tax GmbH at FYB

Authors:
Thomas Jäger,
Tax Advisor, Managing Director, LM Audit & Tax GmbH, München

Miriam Rosenthal,
Lawyer, Tax Advisor, LM Law Rechtsanwaltsgesellschaft mbH, München

Maximilian Bodenhagen,
Certified Public Auditor, Tax Advisor, LM Audit & Tax GmbH, München

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Current Trends in Tax Compliance for Real Estate and Private Equity

German tax law is in a constant state of flux; after months of coalition negotiations, the government is functioning once again, and 2018 sees another Annual Tax Act. It focusses, once again, on share deals in terms of both the land transfer tax and income tax. Key topics such as the appropriate rate of interest on shareholder loans (keywords: general group recourse), or the repayment of contributions from non-EU countries, have gained in momentum. In the area of the recognition of liquidation losses from equity investments held in private assets and losses from loans, the rulings of the German Federal Fiscal Court (BFH) show a positive trend. At the moment, there is also hope that the Federal Fiscal Court (BFH) will change its mind in the area of commercial infection. This article aims to highlight the key developments and their relevance for the practice.

Complete report for download

Parker Randall/ Real Estate Tax Compliance in Germany

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Accounting obligation of foreign real estate corporation

BFH I R 81/16 of 14/11/2018

In a recent judgement, the Federal Fiscal Court (BFH) confirmed the legal obligation of foreign real estate corporations to keep books of account (accrual based tax accounting).

Facts of the case (in brief):
The plaintiff was a public limited company under Liechtenstein law. According to the findings of the tax office, it had neither a permanent establishment nor a permanent representative in Germany. Thus, its only fiscal connection was the situs of a let property in Germany regularly leading to a limited tax liability for so-called fictitious business income under Section 49 (1) no. 2f of the Income Tax Act (since 2009).

The present dispute concerned whether an obligation indubitably existing under foreign law to keep books of account according to Section 140 of the General Tax Code (AO), which concerns accounting obligations ‘under other laws’, also covers foreign law. In its present judgement, the BFH answered this in the affirmative.

Comment by LM:
In the past, in determining the lettings income in cases of a limited tax liability arising from a let property located in Germany, the so-called cash-based-accounting method was usually applied.

This procedure was helpful for, among other things, controlling the interest paid (outflow principle in net income method) within the scope of the so-called interest cap (Section 8a of the Corporation Tax Act).

The BFH’s judgement is likely to be of only limited significance for current taxation practice, since the Federal Finance Ministry had also argued in favour of such an accounting obligation as early as in a letter dated 16 May 2011 (no. 3).

As a stop-gap, tax offices had required books of account, i.e. a tax balance sheet, at the latest when the turnover and profit limits under Section 141 of the AO had been exceeded. To that extent there is now legal certainty.

In practice, it is likely – not least for pragmatic reasons – that foreign annual accounts (where there is an accountancy obligation abroad on grounds of the legal form or size of a company) have as a rule been transitioned into German tax balances for some time. But the judgement also shows that merely copying a foreign balance sheet is not sufficient for German taxation purposes.

Your contact:

Mr. Thomas Jäger (Tax Advisor)

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Property tax: Provisions on standard rateable values for assessing property tax are unconstitutional

On 10 April 2018, the German Federal Constitutional Court (BVerfG) announced its decision in relation to standard rateable values for the assessment of property tax. The court ruled that the provisions of the German Valuation Act (BewG) for the standard rateable valuation of property in the states of former West Germany have been incompatible with the general principle of equal treatment, at least since the beginning of 2002. It has given the German legislature until the end of 2019 to introduce a new provision. The valuation rules that were deemed unconstitutional will apply for a further five years after that, but not after 31 December 2024 (BVerfG, judgement dated 10 April 2018 – one BvL 11/14, 1 BvL 12/14, 1 BvL 1/15, 1 BvR 639/11, 1 BvR 889/12).

Standard rateable values for property are still determined today in accordance with the German Valuation Act based on the valuation baseline of 1 January 1964. In the states of former East Germany, the valuation baseline is actually 1 January 1935. The German Federal Fiscal Court (BFH) concluded in its referral decisions (BFH dated 22 October 2014 – II R 16/13, BStBl [German Federal Tax Gazette] 2014 II p. 957; 22 October 2014 – II R 37/14 and 17 December 2014 – II R 14/13) that the standard rateable values for property are unconstitutional as they violate the general principle of equality (Art. 3 (1) of the Basic Law for the Federal Republic of Germany (GG)), at least since the valuation baseline of 1 January 2008 and/or 1 January 2009. The plaintiffs also essentially claimed a violation of their basic rights under Art. 3 (1) GG in their constitutional complaints (1 BvR 639/11 and 1 BvR 889/12).

The judges of the German Federal Constitutional Court also made the following findings inter alia:

  • The provisions of the German Valuation Act relating to the standard rateable values for property are incompatible with the general principle of equality. Art. 3 (1) of the Basic Law gives wide latitude to the legislature when it comes to setting out the details of valuation provisions regarding the tax base, but it requires a realistic valuation system as regards the relation of assets to each other.
  • The fact that the legislature continues to draw on the general baseline of 1964 results in serious and extensive unequal treatment in the valuation of property, which is not sufficiently justified.
  • The distorted values resulting from the overly long general baseline date are reflected in the individual valuation elements of both the rental value method (Ertragswertverfahren) and the capital value method (Sachwertverfahren).
  • The following applies for the continued application of the rules found to be unconstitutional: Firstly, the rules continue to apply for the standard rateable values assessed in the past and the collection of property tax based thereon. Beyond that, the rules will continue to apply in the future, initially until 31 December 2019, by which time the legislature must enact new provisions.
  • As soon as the legislature has enacted new provisions, the valuation rules deemed to be unconstitutional will apply for a further five years, but no longer than 31 December 2024 at the latest. The unusual decision to order continued application after the promulgation of new provisions is deemed necessary and therefore justified as an exception in light of the specific nature and complexities of property tax.
  • For calendar years from 2025 onwards, the Senate has ruled out property tax burdens based solely on final decisions on standard rateable values or property tax assessments from previous years.

 Full press release German Federal Constitutional Court

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Provisions on standard rateable values for assessing property tax are unconstitutional

Federal Constitutional Court, Press Release No. 21/2018 of 10 April 2018

Judgment of 10 April 2018

 

The provisions of the Valuation Act (Bewertungsgesetz – BewG) regarding the standard rateable valuation (Einheitsbewertung) of property in the former West German Laender are incompatible with the general guarantee of the right to equality, at least since the beginning of 2002. With regard to the valuation of property, the legislature continues to draw on the general assessment date (Hauptfeststellungszeitpunkt) of 1964. This results in serious and extensive unequal treatment, which is not sufficiently justified. Based on these reasons, the First Senate of the Federal Constitutional Court has declared the provisions unconstitutional in its judgment pronounced today, ordering that the legislature must enact new provisions by 31 December 2019. Until that date, the unconstitutional provisions may continue to be applied. After the new provisions have been promulgated, the old provisions may be applied for another five years from the date of promulgation, but not after 31 December 2024.

Unsere News geben Veröffentlichungen jeglicher Art nur auszugsweise wieder. Für Informationsfehler können wir daher trotz Sorgfalt keine Haftung übernehmen. Individuelle Beratung im Einzelfall kann dies nicht ersetzen. Auf Inhalte von Internetseiten, die wir verlinkt haben oder auf die wir hinweisen, haben wir keinen Einfluss. Eine Haftung hierfür wird daher ausgeschlossen.

Real Estate Tax Compliance – Current Focal Points from Recent Tax Audits

The management of single real estate properties through to extensive real estate portfolios is certainly a challenging task, and one which becomes more complex when taxation guidelines are to be taken into consideration. In addition to other factors, the recent administrative decree of the German Federal Ministry of Finance (BMF) concerning the differentiation between mere amendments of incorrect tax returns and a voluntary self-disclosure to the tax authorities of false or incomplete tax declarations in case of tax fraud, has seen tax compliance once again become the focus of all participants. Tax practice has shown that pitfalls are to be found in several places, and that the best tax-structure memo cannot provide any guarantee for a life without tax worries if circumstances change later or new circumstances arise, or the original legal or tax guidelines are not carried out properly.

The following report in the Financial Year Book 2018 aims to highlight key focal points from tax audits with which we have been entrusted, and therefore offer proposals for possible solutions at the same time; in this respect, we assume an inbound scenario in which real estate located in Germany is held by domestic or foreign property companies.

Complete report für download (PDF/176KB)

Parker Randall/ Real Estate Tax Compliance in Germany

Unsere News geben Veröffentlichungen jeglicher Art nur auszugsweise wieder. Für Informationsfehler können wir daher trotz Sorgfalt keine Haftung übernehmen. Individuelle Beratung im Einzelfall kann dies nicht ersetzen. Auf Inhalte von Internetseiten, die wir verlinkt haben oder auf die wir hinweisen, haben wir keinen Einfluss. Eine Haftung hierfür wird daher ausgeschlossen.

Holding real estate in Germany

Fund Structures and German Taxation at a Glance

Although decisions on investments in real-estate are not primarily tax driven, taxation plays an important roll. Not only the recent BEPS discussion but also further aspects of transfer-pricing, interest deduction and loss utilization play an increasing role in international tax structures.
Last but not least another important intention when administrating real estate is to hold the Propco free of German trade tax which can occur under specific circumstances.

The purpose of this document is to provide an overview – at a glance – of major tax aspects which are relevant for international investors planning to invest in German real estate.

LM as an independent accounting, auditing, tax compliance and law firm has a strong focus in real estate for many years thus enabling us to cover the full life-cycle of an asset. Due to our comprehensive relation-ships to various service providers in the field of real estate such as law firms, property managers and last but not least accounting & domiciliation providers domiciled in other jurisdictions such as Guernsey or Luxembourg we are in the position to serve as a one-stop-shop to drive your real estate project to success.
We will treat your real estate as if it was our own!

Should you seek for further assistance please do not hesitate to contact us.

Schlagwörter: Real-Estate/ Internationales Steuerrecht

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Unsere News geben Veröffentlichungen jeglicher Art nur auszugsweise wieder. Für Informationsfehler können wir daher trotz Sorgfalt keine Haftung übernehmen. Individuelle Beratung im Einzelfall kann dies nicht ersetzen. Auf Inhalte von Internetseiten, die wir verlinkt haben oder auf die wir hinweisen, haben wir keinen Einfluss. Eine Haftung hierfür wird daher ausgeschlossen.

How to achieve a refund of land tax on real estate in case of vacancies?

Refund of property tax on real-estate according to the Federal Real Estate Tax Act

Real estate lessors whose property is vacant for a longer period can reclaim a part of their paid property tax on real-estate.

 

How to apply for the refund of property tax on real-estate?

The major requirement for the refund is a significant drop in rent income – mostly triggered by vacancies – which besides must not be provoked by action of the real estate owner. The benchmark for such reduction in rent income is the common rent for assets of same type, location and fitting. Therefore the refund is not granted in case the lessor terminated the rent contract during the relevant period i.e. with the target to execute an asset refurbishment. Requirements are subject to a close review of the tax authority.

Furthermore the lessor must prove that he has undertaken action to achieve a letting at a market oriented price. Documentation at an early stage of the attempts to find new tenants is highly recommended.

 

Which form and due time need to be considered for the application?

The request for the refund of the property tax on real-estate can be made informally at the municipal town or city authorities.

In the federal city states Berlin, Bremen and Hamburg the application should be addressed to the tax authority. The deadline – which cannot be extended – is always the 31st March of the following year. An extension of the deadline is impossible (cut-off date).

 

How much will be refunded?

In case that the reduction in rent-income is more than 50% a 25% discount of the property tax on real estate will be granted. If the asset was completely vacant in the relevant period 50% of the property tax on real estate will be refunded.

Contact:

Thomas Jäger, Partner, Tax Advisor

Robin Friedrich, Auditor, Tax Advisor

 

 

Tags: property tax on real-estate, vacancy, real estate tax, Real Estate

By Thomas Jäger, Partner, Tax Advisor, Robin Friedrich, Auditor, Tax Advisor, published 2014-02-24

Unsere News geben Veröffentlichungen jeglicher Art nur auszugsweise wieder. Für Informationsfehler können wir daher trotz Sorgfalt keine Haftung übernehmen. Individuelle Beratung im Einzelfall kann dies nicht ersetzen. Auf Inhalte von Internetseiten, die wir verlinkt haben oder auf die wir hinweisen, haben wir keinen Einfluss. Eine Haftung hierfür wird daher ausgeschlossen.