On what date should property tax be levied on a constructed real estate asset: Russian Supreme Arbitration Court will provide its response

Pepeliaev Group advises that on 16 November 2010 the Presidium of the Russian Supreme Arbitration Court will consider on what date property tax should be levied on a constructed real estate asset [1].

The judges will decide when the constructed real estate asset starts meeting the criterion of being able to generate economic benefit (i.e. income) in future [2] to be able to include it into fixed assets.

Possible approaches

The Presidium of the Russian Supreme Arbitration Court will consider two possible approaches to determining when property tax should be levied on an asset.

a) from the date when the asset is officially operable (after it has been accepted by the state commission and the permission for its commissioning has been obtained);
b) from the date when the asset is actually ready for operation (after all work, including finishing work, has been completed).

Pepeliaev Group’s comment:

Many companies are interested in the court’s decision on this issue, as in practice constructed assets are often considered to be ready for operation ac-cording to permits obtained, when in reality they are not. Moreover, if the decision is in favour of taxpayers, companies in similar situations will be able to derive real benefit from paying property tax at a later stage.

[1] Ruling No. VAS-4451/10 dated 20 August 2010 on referring the case to the Presidium of the Russian Supreme Arbitration Court for supervisory review.

[2] Sub-clause “d”, clause 4 of Accounting Regulations 6/01 “Accounting of Fixed Assets” approved by order No. 26n of the Russian Ministry of Finance dated 30 March 2001.