OECD Report Shows Global Trend Towards Higher Property Taxes
In a recent report on tax reforms that have been carried throughout the globe during the past year, the OECD shows that jurisdictions have focused on increasing property taxes via base broadening and/or tax rate hikes.
As presented by the OECD, property taxes of all types make up, on average, about 5.6 percent of member countries’ accumulated tax earnings.
According to Tax Foundation’s Cristina Enache, who summarized the findings in the OECD report, “property taxes, especially those on real property, can be a relatively efficient way to raise revenue...because real property is not easily hidden from tax authorities and often has sufficient benchmarks for valuation purposes.”
Countries looking to boost revenue via property taxes generally do so via inheritance, exit, financial transaction and net wealth taxes, the latter being the one less commonly applied as, according to Tax Foundation, they “ harm innovation, reduce investment, and negatively impact long-term growth.”
The OECD’s study shows that during 2019 and 2020 countries have opted to reform their property taxes, either increasing or decreasing the revenue brought in as a result.
Below is a summary of what some countries have done in relation to property taxes during the last year, as described in the OECD study.
Property owners who make less than 28 thousand dollars in taxable income will not be liable for property taxes. Those making more than this amount, however, will see their property tax obligations dwindle over the next three years. This reform does not apply to those who own a second home.
An extensive reform is expected to kick in in Germany by 2025 as the German Congress found the system the country uses to calculate its property taxes to be unconstitutional. According to Enache, this decision was reached “because taxpayers with similarly priced properties in the same municipality often end up paying different real property taxes.”
Greece set up a system of property tax rebates in 2019, offering 10 percent and 30 percent rates for properties valued at more than 1 million Euros and under 60 thousand Euros, respectively.
During the current year, Italy merged the local property tax with the municipal service tax and deemed that, “starting in 2022, the property tax will be fully deductible against business’ taxable income.”
Turkey introduced a brand new tax targeting properties worth more than 670 thousand dollars. Three tax rates ranging from 0.3 to 1 percent apply in this case.
Ireland set up a 1 percent stamp duty targeting the sales of companies falling under a select group of prerequisites, such as, according to Tax Foundation, “when the shares of the acquired company are canceled instead of being transferred.”
The government also increased the threshold applied to gift and inheritance taxes by 15 thousand Euros to 335 thousand.
In an interesting move, Korea slashed the transaction tax applied to securities in an effort to promote investment. As explained by Enache, “the trading tax for stocks listed on KOSPI and KOSDAQ markets were cut by 0.05 percentage points to 0.10 percent and 0.25 percent, respectively,” while “the tax for the KONEX market was cut by 0.2 percentage points to 0.1 percent.”
Holland ramped up the stamp duty charge on non-residential spaces by 1.5 percent to 7.5 percent, while also increasing their transfer tax rate by 1 percent to 7 percent.
According to the OECD, the Spanish government has suggested implementing a financial transaction tax at a rate of 0.2 percent “on the purchase of shares of Spanish companies with a market capitalization of more than €1 billion ($1.18 billion).”
For a full copy of the report, see the OECD’s website HERE.