Challenging cadastral value – Decrease in corporate property tax
Author: Roman Sokolov, Lawyer at Accountor Russia
All organizations which own real estate property must pay corporate property tax and land tax.
The tax base for certain types of real estate property is dependent on the cadastral value of such property: the higher the cadastral value, the greater the payable tax. The law entitles organizations to decrease the cadastral value of real estate property, and we have outlined in this article when and how this can be done.
Types of real estate property allowing to decrease tax
Property tax may be decreased if the tax base is determined by the cadastral value of property as is the case for the following real estate property:
- Administrative/business centers and shopping centers as well as premises in such centers;
- Non-residential premises used as offices, retail facilities;
- Real estate property of foreign organizations that do not operate in the Russian Federation through a permanent establishment, as well as real estate property of foreign organizations not related to organizations operating in the Russian Federation through a permanent establishment;
- Residential buildings and residential premises not recorded in balance sheet as fixed assets.
What is cadastral value and how is it determined?
Cadastral value is the value of a property set by a state cadastral valuation performed by the state authorities of the region in which the property is located.
The cadastral value and market value of a property sometimes differ greatly.
Grounds for challenging the cadastral value of real estate property
Two grounds can be used to challenge the cadastral value set by state authorities (Article 24.18(11) Federal Law N 135-FZ; Article 22(7) Federal Law N 237-FZ; Article 66(3) Land Code of the Russian Federation):
- Inaccuracy of the real property data used to determine the cadastral value of the real estate property. For example, the surface area of an organization’s office is 100 m2, but the appraiser indicated that the surface area is 200 m2. Such inaccuracy directly affects the cadastral value and can be used as grounds to challenge the valuation results;
- Getting an appraisal of property market value at the same time as the valuation of its cadastral value. If information on the market value of similar properties in the region is available, and it is lower than your property’s cadastral value, such information could be used as grounds to challenge the cadastral valuation results.
How to challenge the cadastral value of real estate property?
There are two ways to challenge cadastral value:
- By appealing against the set cadastral value to a dispute resolution committee (out-of-court procedure);
- In court.
Although either method can be chosen to appeal against cadastral value, we recommend opting for the out-of-court procedure as it is faster, and a large number of appeals is satisfied that way.
Out-of-court procedure for challenging cadastral value
- It is necessary to appeal to the regional office of the committee for resolution of disputes over cadastral value of the Federal Service for State Registration, Cadaster and Cartography (Rosreestr) by submitting an application and required documents. This application must specify:
- The details of the entity submitting the application (name of organization, OGRN);
- The address of the property whose cadastral value is challenged;
- The grounds for invalidation of cadastral value.
The following must also be submitted with the application:
- Extract from the State Register of Real Estate Property with property cadastral value;
- Copy of property title deed;
- Documents confirming the inaccuracy of the data used to determine the property cadastral value (if the application is submitted on ground of data inaccuracy);
- Report on property market value on paper and in electronic form (if the application is submitted on ground of property market value).
- The committee will then send within 7 working days a notice specifying when the application will be considered (within a month of document submission). It is important to note that attendance at the application examination is required.
If the committee decides to change the cadastral value, then it will notify the relevant state authority of its decision within 5 working days.
Court procedure for challenging cadastral value
Both cadastral value and committee decisions can be challenged in court if the committee has declined to change the cadastral value.
When cadastral value is challenged, the local authority that approved the cadastral value as well as Rosreestr are defendants. And when an organization files an action against a committee decision, then the committee that rendered such decision is the defendant.
To challenge cadastral value in court, an administrative statement of claim must be made and filed:
- Within 5 yeas of the date on which the disputed cadastral value was recorded in the State Register of Real Estate Property (or State Real Estate Cadaster up until January 01, 2017);
- Within 3 months of the date of receipt of committee decision.
The time period for application examination depends on the grounds for submission:
- An application for contestation of cadastral value is examined within 2 months of application acceptance by the court;
- An application for contestation of committee decision is examined within 1 month of application acceptance.
When do decisions for change of cadastral value enter into force?
If cadastral value is changed by court or committee decision, then the new cadastral value is effective from January 1st of the year in which the organization submitted an application for change of cadastral value, but not before the date of entry of the disputed cadastral value in the State Register of Real Estate Property.
What to do after change of cadastral value?
When challenging cadastral value, it is also possible to apply for a refund of overpaid tax by submitting an application form (KND 1150058) to tax authorities.
The time period for which tax is refunded depends on the grounds used to challenge cadastral value.
- If the cadastral value of a property is changed due to the correction of errors made when such value was determined, tax will be refunded for the period during which such erroneous cadastral value was used.
Cadastral value is used to determine the tax base for the next period following its establishment. In other words, if cadastral value is recorded in the State Register of Real Estate Property in 2015, the tax based on this cadastral value will be calculated only from 2016.
- If the cadastral value of a property is changed by Rosreestr committee or court decision on other grounds (for example, property market value), tax will be refunded from the period in which the application for change of cadastral value was submitted.
Amendments to the Tax Code changing these rules (Federal Law N 334-FZ dated August 03, 2018) will enter into force from 2019 onwards.
If cadastral value is changed by Rosreestr committee or court decision due to changes in the property characteristics, the changed cadastral value will be taken into accounting to determine the tax base as soon as it is recorded in the State Register of Real Estate Property. For instance, if the surface area of a property changes in 2019, and the new surface area is recorded in the State Register of Real Estate Property in 2020, the changed cadastral value will apply from 2020 even if an application for change of cadastral value is submitted later.
New rules will also apply in 2019 when cadastral value is changed because of property market value. It will then be possible to refund tax from the tax period in which the disputed cadastral value is established.
It is important to note that these new rules will apply only to cadastral value established after January 01, 2019. If cadastral value is recorded in the State Register of Real Estate Property before that date, then the current rules will apply.
Although challenging cadastral value seems fairly easy, the process is not without pitfalls. It indeed requires preparing applications and documents properly and can take a lot of time. A positive outcome is also not guaranteed all the time as even minor mistakes can result in rejection of applications.
How can we help?
We have extensive experience and are happy to assist in challenging the cadastral value of real estate property:
- We evaluate the cadastral value of properties for compliance with market value. Our experts thoroughly review the property data used to determine the property cadastral value for accuracy. If you are not sure whether you should challenge cadastral value, we could conduct a preliminary analysis to determine the property tax/land tax amount payable after challenging the property cadastral value (upon positive challenge result).
- We assist in challenging cadastral value both in and out of court, in particular, by conducting appraisal, analyzing cadastral evaluation, preparing applications and participating in court and committee hearings.