Constitutional Court Annuled Real Estate Tax

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The model for valuing property for tax purposes, based on the 2006 mass real estate valuation act, was raised as a key problem of the real estate tax by Slovenia's highest court in its highly-anticipated ruling.

The ruling says that the model is too vague, while its modalities are set down in executive acts, even though the Constitution determines such provisions should be passed by the legislator.

As a result the court also decided to quash parts of the appraisal act related to the establishment of property values for tax purposes, president of the Constitutional Court Miroslav Mozetič announced in a public reading of the ruling.

While the government had proposed to equally split the revenues from the tax between the national budget and municipalities, the court ruled that real estate tax is primarily a local tax. The bulk of the proceeds should therefore belong to the municipalities.

Moreover, the court found that differentiation of tax rates between commercial real estate and energy buildings was discriminatory, while the law failed to provide a satisfactory means of appealing the tax in line with the constitutionally-guaranteed right to legal remedies.

Mozetič announced that the court had ordered that property taxes which the real estate tax was to replace, including a fee for the use of building land, be restored for this year in order to provide revenues to the municipalities.

The ruling relates to a series of petitions filed against the controversial tax after the act was passed late last year.

The petitions from the opposition, National Council, business organisations and municipality associations dealt among others with issues related to the valuation of property, possibility for appealing the levied tax, and the system of the financing of municipalities.

The real estate tax was a key piece of the national budget for this year. The government planned it would collect around EUR 320m-340m in revenues this year following recent tweaks to the act which are still in parliamentary passage, but will likely be halted now.

It is unclear how the government will offset the lost revenue, although it had considered a crisis tax on income before pushing ahead with the real estate tax last year.

In separate opinions attached to the ruling, several judges highlighted that the real estate tax itself was not the problem, with the means with which such a tax is implemented being the issue at hand.

The decision to quash the relevant legislation "does not mean that the implementation of the real estate tax as such runs contrary to the Constitution", Mozetič wrote in his opinion. "Introducing such a tax is exclusively in the hands of the legislator."

He highlighted that legislation laying out such an tax must abide by the Constitution. This was also echoed by other justices in their separate opinions – seven of the nine judges published such opinions.

The real estate tax "can only be implemented with a tax act that respects constitutional principles and norms and principles related to taxation", said justice Ernest Petrič. He warned of the massing of taxes in Slovenia, which "belongs to the group of countries with extremely high taxes".

Justice Jan Zobec meanwhile highlighted that any such property tax must not be excessive in terms of its effects on the guaranteed right to property.

Law expert Erik Kerševan, who wrote the petition for the National Council, said that the ruling must also be viewed as a guideline for how a real estate tax law should be formulated in the event of a new attempt to implement such a tax.

The government and National Assembly should not rush with adopting such a law, warned Kerševan, assessing that it was the rush which led to the shortfalls of the law which was quashed by Slovenia's top court.