Plots of limited privilege – Newspaper Kommersant No. 55 (7500) dated 03/31/2023

The Supreme Court of the Russian Federation (SC) decided that commercial organizations that own land plots for individual housing construction (IZHS) are not entitled to apply a reduced land tax rate to them. Purchased land for resale to citizens or construction of objects on it – it does not matter. Lawyers were not surprised by the position of the Supreme Court. In their opinion, now the tax authorities will be able to retrospectively review the amount of tax paid by companies, accrue arrears and penalties.

The Supreme Court resolved the dispute on tax incentives for land owners. The fact is that the Tax Code of the Russian Federation (TC) provides for two types of rates for calculating land tax, the limit values ​​are 0.3% and 1.5% of the cadastral value. Local authorities, if desired, have the right to lower it, but this is extremely rare. Until January 1, 2020, all plots intended for individual housing construction were taxed at a rate of 0.3%. But the amendments made to the Tax Code blocked the reduced rate for land “used in business activities.” At the same time, there are no restrictions on the range of owners who can apply the benefit, so some cottage developers continued to use the low rate.

As a result, a dispute arose between Tishina LLC and the Moscow Region Tax Inspectorate. The company had five plots for individual housing construction, for which it paid a tax of 0.3% at the end of 2020. After an inspection in November 2021, the inspection calculated the tax at a rate of 1.5%, the company had to pay an additional 11.61 million rubles. arrears and 1.51 million rubles. penalties.

The LLC asked the higher tax authority to cancel the additional charges, and after the refusal, it went to court. The first and appellate instances took the side of the tax authorities, explaining that Silence bought the land for resale, and therefore has no right to apply a reduced rate. But the cassation satisfied the company’s claim (for more details, see “Kommersant” dated February 16).

The Inspectorate appealed the decision to the Supreme Court. According to the tax authorities, in order to apply the reduced rate, the land must be used for its intended purpose, and not for commercial purposes (in October 2022, the plots were divided and partially sold to citizens). The case was referred to the Economic Collegium of the Armed Forces, which recognized the tax claims as legitimate, leaving the decision of the first instance in force.

The Supreme Court clarified that the meaning of the amendments to the Tax Code implies the application of a preferential rate only for plots with the purpose of individual housing construction, which are acquired by citizens “for their own needs related to living”. Commercial organizations, according to the collegium, cannot apply such a rate, “even if they build individual housing construction facilities for sale to citizens.”

Moreover, the Supreme Court stressed, such persons “are not entitled to apply the 0.3% rate in cases where they do not intend to start individual housing construction, but use land plots in business as assets, counting on making a profit from their sale or on using them as objects bail.” Under such circumstances, from 2020, “the very fact that a commercial organization owns a land plot acquired for individual housing construction excludes the possibility of applying a reduced rate,” the board concluded.

Lawyers call the Supreme Court’s decision expected and explain that it will primarily affect cottage developers. Even before the amendments, the Supreme Court “more than once took the side of the tax authorities in cases where taxpayers did not build housing facilities on disputed sites,” said Khati Abdurakhmanova, a Vegas Lex tax lawyer. But there were also decisions in favor of business with the conclusion that the reduced tax could be applied to the plots “regardless of who owns them,” says Land Law Firm Managing Partner Denis Litvinov. Now the situation has become simpler: only natural persons will be able to use the preferential rate, Mr. Litvinov believes.

The Supreme Court referred to a change in the goal of the legislator who amended the Tax Code, adds Taxology partner Alexei Artyukh: “If earlier the task was to stimulate individual housing construction in general, which was achieved, among other things, by reducing the cost of developers by the “tax component” and, in theory, increased the availability of individual houses for population. Now we are talking about encouraging only citizens to take up individual housing construction.” In his opinion, this can be explained “not so much by the desire to increase the fiscal effect, but by creating a tax incentive for the accelerated introduction of plots into circulation.” About ten years ago, a similar mechanism was used for residential premises: apartments that had not been sold for two years were subject to property tax without benefits, Mr. Artyukh says.

LegalPlant partner Evgeny Pugachev explains that now the tax authorities will be able to retrospectively review the amount of tax paid by legal entities and accrue arrears and penalties. Given the position of the Supreme Court, it is unlikely that such additional charges will be challenged, Mr. Pugachev believes, therefore, “the cost of land is likely to increase for future buyers.”

Ekaterina Volkova, Anna Zanina