What counts as real estate for property tax

The Supreme Court has supported the taxpayer in a dispute with the tax authority on whether property is to be classified as immovable for the purposes of charging property tax (ruling of 10 October 2024, No. 303-ЭС24-8693, Arkaim, a limited liability company).

The taxpayer took the view that its assets were movable property and were therefore not subject to the tax.

The Supreme Court supported the taxpayer:

1. The tax authorities are not entitled, at their own discretion, to treat property as an object of taxation.

2. Neither the fact that property is used for a common functional purpose, nor the combining of the taxpayer's property into a property complex (into a single lot) for the purpose of entering into transactions, is a sufficient ground for classifying the assets as immovable property.

3. What matters is how the assets were recognised in the accounting records.

4. It is important to take into account whether the assets were acquired at different times.

In addition, the Supreme Court referred to an expert's report.

The difficulties in disputes over the property tax of organisations, on the question of classifying property as movable or immovable, arose a long time ago. They have still not been resolved. The key question is which criteria are to be followed in order to classify property correctly. The Supreme Court has spoken on the question before: a ruling of the Judicial Panel of the Supreme Court of 12 July 2019 (Lesozavod 25, a closed joint-stock company), and rulings of the Judicial Panel of the Supreme Court of 17 May 2021, No. 308-ЭС20-23222 (Yug-Novy Vek, a limited liability company), and of 28 September 2021, No. 308-ЭС21-6663 (Achaluki Mineral Water, a limited liability company). Bill No. 727330-8 will be introduced in the State Duma. It proposes amendments to the Tax Code that would resolve the problem, but only for electricity-grid assets. In addition, by a ruling of 8 October 2024, No. 306-ЭС24-7822, the Supreme Court accepted for consideration a cassation appeal by Sebryakovcement, a joint-stock company. A date for the hearing has not yet been fixed. Time will tell whether, in the new ruling, the Supreme Court succeeds in developing criteria that are still more general. It can safely be said, however, that a turning point has been reached at the level of the Supreme Court. Right now, therefore, taxpayers should promptly analyse the tax risks, and the prospects of disputes with the tax authorities, in relation to their own property, comments Andrey Rymarev, head of tax practice at Consul Group.

Follow Consul Group on Telegram.