The Moscow authorities retrospectively revised the cadastral value of 2,500 properties

The Moscow authorities retrospectively revised the cadastral value of 2,500 properties

Owners of retail property in Moscow were faced last year with a sudden increase in cadastral value: it was revised retrospectively for 2,502 properties. They did not succeed in the court of first instance, but at the end of June the Ministry of Finance supported them. The Ministry informed the tax service that an increased cadastral valuation of real estate cannot be the base for determining the tax in the current and previous tax periods. If, however, the recalculation led to a reduction in cadastral value, the new valuation can be taken into account now as well.

Incomplete information on the properties was used in the cadastral valuation, the Moscow City Property Department insisted, by way of explaining the revision of cadastral value. "This is a technical error: the Rosreestr records on the properties stated the wrong purpose," a representative of the Moscow Department of Economic Policy and Development explains. For example, prime retail and office properties in the Central Administrative District ("Nautilus" on Lubyanka, "Domnikov" on the Garden Ring) were recorded as social facilities or as facilities of unknown purpose. Their cadastral value had been understated several times over and stood at RUB 18,000 per square metre. "They paid as if for basements, while comparable properties paid tax on a cadastral value close to the market, RUB 250,000-350,000 per square metre," the department's representative says.

When the actual use of the retail property was identified, the department initiated a revision of the cadastral valuation. The Moscow Government approved the results on 26 December 2016, and the new cadastral value was to apply from 1 January 2016. The tax base for real estate is determined as its cadastral value as at 1 January of the year that became the tax period, the Ministry of Finance recalls.

The department's representative maintains that the Ministry of Finance letter has nothing to do with the revision of cadastral value in Moscow. Dozens of courts, including the Supreme Court, have confirmed that the correction of errors establishes a fair amount of tax and that owners must pay the difference, he says. A representative of the Ministry of Finance said that the position is set out in the letter, and declined to comment further.

The Ministry of Finance letter cannot, of itself, be a ground for recalculating tax payments, but owners can go to court, says Mikhail Kyurdzhev, a partner at the A2 law office.
Consul Group, the law firm representing a group of large taxpayers, plans to resume the court proceedings that were discontinued at the end of June, its representative said.

The Ministry of Finance letter makes it possible to file an amended return with the tax authority, to lodge an appeal with the court, and to insist that procedural violations were committed - the court of first instance should have joined a representative of the Federal Tax Service,

- says Sergei Pivovarchik, managing partner of Consul Group.

If the court on appeal does not grant the claim to set aside the recalculation of cadastral value that was carried out, an application to the Constitutional Court will be brought on behalf of the taxpayers, Sergei Pivovarchik warns.
"Unexpected revisions of a cadastral valuation are very common," Kyurdzhev knows. And this is the wrong practice, says Alexey Kaminsky, president of the Expert Council self-regulatory organisation of appraisers: the law provides for the valuation to be changed at set intervals. For example, in cities of federal significance (Moscow and St Petersburg) cadastral value may be revised no more often than once every two years, and in the other regions of Russia no less often than once every five years, but no more often than once every three years.

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