Changes in property tax law and in accounting from 2022

Let us look at a number of key changes, from 2022, in the administration and payment of property tax.

- Properties whose tax base is calculated from their cadastral value no longer have to be declared. Taxpayers themselves calculate the advance payments and the tax, and pay them. At the end of the tax period the tax authority will calculate the tax on such properties and send the taxpayers notices of the amounts of tax calculated.

- Property tax relief for properties whose tax base is calculated from their cadastral value is granted either on an application filed by the taxpayer or, if no application is filed, on the basis of information the tax authority already holds.

The form of that application was approved by Order of the Federal Tax Service of Russia No. ED-7-21/646@ of 9 July 2021. As to the relief, taxpayers are finding it difficult to obtain from the tax authorities confirmation of the right to apply it where the application is filed before the tax period has ended.

In particular, paragraph 2.3 of Article 4.1 of Law of the City of Moscow No. 64 of 5 November 2003 "On Corporate Property Tax" (hereinafter, the Law of the City of Moscow) gives taxpayers the right to pay tax at 25 per cent of the amount calculated, in respect of the buildings (structures, facilities) specified in paragraph 1 of Article 1.1 of that Law, provided that less than 20 per cent of their total area is used for offices and related office infrastructure and/or retail facilities and/or public catering facilities and/or consumer service facilities. That use must be established by the latest measures to determine the type of actual use, carried out from 1 January of the year preceding the tax period for which the tax relief is claimed, to 30 June of the year of that tax period.

The relief is confirmed by an inspection report of the State Inspectorate for Real Estate. Paragraph 8 of Article 382 of the Tax Code has been in force since 2022. Taxpayers file an application for tax relief with a tax authority of their choice, and the tax authority considers the application by a procedure analogous to that in paragraph 3 of Article 361.1 of the Tax Code.

The Tax Code sets no time limit for filing an application for relief, so taxpayers may decide for themselves when to file it.

From 1 January 2023, paragraph 6 of Article 386 of the Tax Code will come into force. The tax authorities will send taxpayers, in the form of notices and at the end of the tax period, the amounts of tax which the tax authorities have calculated for such properties, for the 2022 tax period and for subsequent periods.

Guided by part 2.3 of Article 4.1 of the Law of the City of Moscow, taxpayers are now applying to the tax authorities, under paragraph 8 of Article 382 of the Tax Code, for the relief for the whole of the 2022 tax period. In the overwhelming majority of cases, however, the tax authorities either refuse the relief for the whole of the 2022 tax period or confirm the right to apply it only as at the date of the application. Together with the refusal, or the partial refusal, the territorial tax authorities recommend that the application for the relief be filed in the first quarter of 2023.

The Office of the Federal Tax Service of Russia for the City of Moscow, in a letter sent in reply to an organisation's enquiry, has explained that an application for tax relief may be filed with the documents that confirm the relief for the reporting period that has already ended.

The refusals to grant the relief do not, however, appear to have any basis in the legislation. Neither paragraph 8 of Article 382 of the Tax Code, in force since 1 January 2022, nor paragraph 6 of Article 386 of the Tax Code, which will come into force on 1 January 2023, nor any other provision of the Tax Code, makes a refusal, or a partial refusal, of the right to apply the relief for the current tax period depend on the date on which the application is filed. Nor do they contain any condition under which the relief may be confirmed for a reporting period that has already ended. The relief is to be granted for the tax period, not for a reporting period. The tax authorities do not take into account that the condition for the relief is compliance with paragraph 2.3 of Article 4.1 of Law of the City of Moscow No. 64 of 5 November 2003 as at the date of the application.

The practice now forming in the territorial tax authorities, of refusing or partly refusing to confirm the relief on grounds the Tax Code does not provide for, puts taxpayers at risk of miscalculating their advance payments and the tax itself. It forces them to keep an overpayment in the budget on a standing basis, so as to avoid additional assessments at the end of the tax period, including late-payment interest.

• Uniform deadlines have been set for payment of property tax and of the advances on it. Constituent entities of the Russian Federation may no longer set their own deadlines for payment. The tax is payable no later than 1 March of the year following the expired tax period, and advance payments must be made no later than the last day of the month following the expired reporting period. The changes were made to paragraph 1 of Article 383 of the Tax Code.
• Order of the Federal Tax Service of Russia No. ED-7-21/668@ of 16 July 2021 has entered into force. Among other things, it approved the form of an application on the destruction or loss of an object. The application is filed so that property tax on the object ceases to be charged from the beginning of the month in which the object was destroyed or lost. After considering it, the tax authority notifies the taxpayer that calculation of the tax has ceased, or that there is no ground for ceasing it. The time limit for filing the application is not laid down, so the taxpayer may file it in the current tax period or in a later one.
• Article 378 of the Tax Code has been supplemented by paragraph 3, under which property let on lease, including under a finance lease (leasing) agreement, is taxed in the hands of the lessor (the finance lessor) (Letter of the Federal Tax Service of Russia No. BS-4-21/111@ of 12 January 2022, together with Letter of the Ministry of Finance of Russia No. 03-05-04-01/402 of 11 January 2022).
• From 1 January 2022, where changes are made to the list of properties specified in subparagraphs 1 and 2 of paragraph 1 of Article 378.2 of the Tax Code, the authorised executive body of a constituent entity of the Russian Federation must send the changes to the tax authorities and publish them on the Internet within five days of the day they are made (paragraph 7.1 of Article 378.2 of the Tax Code).
• As to the changes in the accounting rules, from 2022 Federal Accounting Standard (FSBU) 25/2018 "Accounting for Leases", FSBU 6/2020 "Fixed Assets", FSBU 26/2020 "Capital Investments" and FSBU 27/2021 "Documents and Document Flow in Accounting" must be applied. The changes in the accounting for fixed assets concern, in particular, a clarification of the features of fixed assets, the introduction of the concept of "investment property" and of special rules for accounting for it, a clarification of how an inventory item is determined, a change in the rules on depreciation and revaluation, the testing of fixed assets for impairment, and a clarification of the information disclosed in the financial statements. For capital investments, a list is set of the costs recognised as capital investments, the conditions for recognising capital investments in the accounts are set, and the accounting for particular types of cost is clarified, among other points.

These changes are set out in more detail in the article.

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