Business fears a higher tax burden on real estate

Business fears a higher tax burden on its real estate because of amendments to the Tax Code, approved by the State Duma in three readings and sent to the Federation Council last week. The list of assets on which tax will be calculated on cadastral rather than book value is becoming an open one, analysts at PwC conclude.

Since 2014, business has paid tax on cadastral value, which is substantially higher than book value, on shopping centres, offices and the residential buildings it owns. The amendments propose to clarify the list by including in it "other assets" on which the public pays tax on cadastral value. That creates risks, says Dmitry Kostalgin, a partner at Taxadvisor: unfinished buildings are named in this list, and for the public the list is an open one, containing "other building, structure, construction, premises". What worries business is not so much the appearance of new assets on the list as the fact that the list is becoming open, says Maxim Khvalibov, tax director of Arconic Russia.

The legislator is making it possible to tax warehouses, industrial buildings, greenhouses and cowsheds on cadastral value. Owners of industrial property may be wholly unable to pay the property tax,

- warns Sergei Pivovarchik, managing partner of Consul Group.

Tax payments will rise substantially, a tax manager at a large foreign company fears, but the main point is that it is not clear how to calculate the cadastral value of some assets, for example production premises. A further risk is the cost of challenging cadastral value, says Alexey Kaminsky, chairman of the council of the Soyuz SOO national association of self-regulatory organisations of appraisers: for a single asset the cost can come to hundreds of thousands of roubles.

Business's fears are excessive, the Ministry of Finance says by way of reassurance. There was no intention of levying tax on all the real estate of organisations at cadastral value, Deputy Minister of Finance Ilya Trunin explains. The point of the rule is that, if an individual's property tax was calculated on cadastral value, that principle does not change when the property is transferred to a company. The same applies to unfinished assets, he notes.

Experts propose that the law be amended. Local tax officials may treat this technical inaccuracy as a new rule and read it in the same way as business does, fears Alexey Artyukh, a partner at Taxology. Explanations from the Ministry of Finance will not solve the problem, he believes: locally, letters from the ministry are often ignored. There is a strong probability that both the tax authorities and the courts will misread the rule, Kostalgin agrees. The law needs to be amended.

When cadastral value was introduced, it was decided that tax should be calculated on it only for assets that produce rental income, such as shopping centres, Khvalibov recalls. The tax burden on industrial production was not supposed to rise, because they already pay tax on their output.

The bill implies that tax will also be charged on real estate that comes to banks as collateral or in settlement of loans, the Federation Council Committee on the Budget and Financial Markets points out in its opinion on the bill. Such amendments will lead to a higher tax burden on banks, a representative of VTB notes. The other banks surveyed by Vedomosti offered no comment. In its opinion the committee proposes giving banks a deferral of payment of the tax, so that they can sell the property.

Follow Consul Group on Telegram.