The Supreme Court backed Consul Group's clients in the dispute against Moscow

Up-to-date information on this dispute (as at 06.04.2019) is published at the link.

The case on an additional assessment of 12.5 billion roubles in tax against the owners of Moscow real estate, made on the basis of Moscow Government Resolution No. 937-PP of 26.12.2016, is being sent back for reconsideration (Case No. 5-KG18-159).

A court case has been running for almost a year and a half, in which the owners of Moscow shopping centres are trying to challenge a resolution of the Moscow government that retrospectively raised the cadastral value of 2,502 buildings and premises. In this way the mayor's office managed to assess an additional 12.5 billion roubles in tax.

The property owners have now been able to show that this decision was unlawful. On Thursday the Supreme Court issued a ruling in which it found unfounded the conclusions of the Moscow City Court, which had heard the case at the previous instance, and ordered the case returned to the court of first instance for consideration on the merits, a representative of the law firm Consul Group, which is conducting the collective claim and defending the owners' interests, told Vedomosti.

The owners of the shopping centres have a chance to recover the property tax overpaid for 2016. A representative of the Supreme Court did not answer Vedomosti's questions.

In the last week of 2016 the Moscow government published Moscow Government Resolution No. 937-PP of 26.12.2016, signed by Mayor Sergei Sobyanin. It sets out a new cadastral value for capital construction projects in various districts. The resolution entered into force on publication, which came as a surprise to the owners. The cadastral value of the properties was increased many times over, from 3 to 15 times, and applied to the whole tax period of 2016, a representative of Consul Group noted.

The tax base for items of real estate is determined as their cadastral value as at 1 January of the year that is the tax period, the Ministry of Finance recalled.

A technical error had occurred, however. Incomplete information about the properties was used in the cadastral valuation, a representative of the Moscow City Property Department explained in accounting for the review of the decision. "Rosreestr's records of the properties stated the wrong purpose," said a representative of the Moscow Department of Economic Policy and Development. Because of this, high-end office and retail properties in the Central Administrative District (Nautilus on Lubyanskaya Square, and Domnikov on the Garden Ring) were recorded as social facilities or as properties of unknown purpose. Their cadastral value was understated several times over and stood at 18,000 roubles per square metre.

"They paid as if for basements, whereas for comparable properties tax was paid on a cadastral value close to the market value, at 250,000-350,000 roubles per square metre," said a representative of the economic policy department. Having noticed the error, the authorities initiated a revaluation of the properties for taxation, and its results became known only at the end of the year.

The lawyers filed a claim seeking to have declared invalid one provision of the resolution, the provision that allowed the new cadastral value to be applied retrospectively. The court of first instance discontinued the proceedings, taking the view that the resolution did not affect the applicants' rights, while the tax authority was assessing the additional tax precisely under that provision. The complaint to the appellate court was also dismissed. The lawyers filed a cassation appeal four times. The first three times the cassation instance of the Moscow City Court returned it to the applicant. On the fourth occasion the appeal was heard and refused.

The outcome in the Supreme Court was determined by the position of the Ministry of Finance. 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, but that if a recalculation reduced the cadastral value, the reduced value may be applied.

Today's victory, decisive in a taxpayer's dispute with the tax service,

- says Sergei Pivovarchik, managing partner of Consul Group.

The courts refuse taxpayers across the board in disputes with the tax authorities. Now that the Supreme Court has said that the resolution of the Moscow government affects taxpayers' rights and that its lawfulness must be examined, and there is a direct violation of a right which the Moscow City Court must remedy, the courts will have to take that into account.

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