The Supreme Court denied banks tax breaks on office space

The Supreme Court of the Russian Federation did not allow businesses to receive a property tax exemption for office space, even if they are used for personal purposes and are not rented out. In the opinion of the Supreme Court, it is sufficient that the organization conducts profit-making commercial activities in these premises.

The Economic Board of the Armed Forces considered the dispute between Sberbank and the State Inspectorate for Control over the Use of Real Estate. As part of the proceedings, the bank challenged the decision of the department, which qualified its premises, where the customer service department was located, as an office, because of which the bank lost the right to a 75% property tax benefit. It is provided if the actual space is used for an office by less than 20%.

Arbitration courts supported Sberbank, deciding that the premises do not become office space if it is used for its own statutory and administrative purposes and is not rented out. Courts clarifiedthat the concept of “office” implies the conduct of independent business, administrative or commercial activities in it, directly or indirectly not related to the provision of production activities of the enterprise.

The State Inspectorate appealed these decisions to the Supreme Court, considering such a conclusion to be erroneous. The case was referred to the Economic Board of the Armed Forces, which supported the arguments of the department and rejected the claim of Sberbank. The Supreme Court referred to the decision of the Constitutional Court of the Russian Federation dated November 12, 2020 No. 46-P, which states that in a normal business environment, office and retail real estate “with a high probability can be used as a profitable object, especially in administrative and business complexes.” This implies a higher value of such property, the SC noted, so they are subject to increased taxation, even when they are used for other purposes than trade and office rental, the decision says.

A bank branch is located in the disputed premises for the purpose of “conducting commercial activities” – in particular, there are “cash desks, individual cabins for clients, operating rooms, meeting rooms, a depository,” the economic board pointed out. In this situation, the conclusions of the courts that the disputed premises should not be considered as office premises due to their auxiliary purpose, contradict the targeted interpretation of the Tax Code of the Russian Federation, the Supreme Court concluded.

Ekaterina Volkova