Revising the cadastral value: Decision of the Russian Constitutional Court
Pepeliaev Group advises that on 5 July 2016, the Russian Constitutional Court passed its Resolution No. 15-P1 extending the powers of state bodies and local government authorities to participate in revising the cadastral value of real estate items.
The Russian Constitutional Court has confirmed that local government authorities may not challenge on their own the cadastral value of privately owned land plots; however, it has extended their opportunities to participate in the procedures for revising the cadastral value initiated by taxpayers themselves.
Background
For a long time, there has been no definite answer to the question of whether state bodies and local government authorities may raise claims on their own, which, if satisfied, may bring about changes in the cadastral value of privately owned real estate items.
It is obvious that, if the above bodies have such a right, this will result in additional risks for the taxpayers since the tax base may be increased against the will of the taxpayer.
The question of whether a local government authority may challenge a decision of a commission of the Russian Federal Service for State Registration, Cadastre and Cartography (“Rosreestr”) was considered by the Presidium of the Russian Supreme Commercial (‘Arbitration’) Court as early as in 2014. The administration of the city of Krasnoyarsk challenged in court a decision of the commission to decrease by several times the cadastral value of a land plot belonging to Rusal OJSC. The Presidium of the Russian Supreme Commercial (‘Arbitration’) Court explained that a local government authority in the territory of which the relevant real estate item is located has a legal interest in having the decisions challenged which commissions make regarding the results of assessments of cadastral value, and that such an authority has the right to challenge these decisions in court on its own2. In doing so, the court confirmed that a local government body has the right to challenge the decisions of commissions.
However, even after that decision, another position prevailed in judicial practice according to which a local government body could not file motions to challenge the results of assessments of cadastral value3 and could not challenge the decisions of commissions of Rosreestr to decrease the value in accordance with the taxpayers’ initiative4.
In its Resolution No. 28 dated 30 June 2015, which dealt with issues relating to the cadastral value being revised5, the Plenum of the Russian Supreme Court did not provide any explanations concerning this issue.
Facts in the case
The administration of the city of Bratsk challenged in court a decision of the commission to decrease significantly (by almost 15 times) the cadastral value of a land plot owned by Ilim Group OJSC. The court of first instance recognised the challenged decision of the commission as unlawful; the court of appeal overturned it and closed the proceedings. The administration was unsuccessful in challenging the judicial decisions adopted in courts of a higher instance.
The city’s administration filed a complaint with the Russian Constitutional Court asking that the provision of paragraph one, article 24.18 of the Law on Appraisal Activities6 be recognised as being in conflict with the Russian Constitution to the extent the above provision violates the right of the local government authorities to legal defence, namely, to to have the decisions of the commissions challenged in court.
Court’s conclusions
In its Resolution No. 15-P dated 5 July 2016, the Russian Constitutional Court voiced the following legal positions:
1.Local government authorities may not challenge on their own the cadastral value of privately owned land plots.
The court pointed out that the Russian Constitution (clauses 5.1 and 5.2) is not compromised by contentious provisions setting out the general procedure for local government authorities to challenge the results of an assessment of cadastral value, including in respect of real estate items retained in municipal ownership.
2. Local government authorities should have more opportunities to participate in procedures for challenging the cadastral value; for instance, they should be able to challenge the decisions of the commissions of Rosreestr to decrease the value significantly.
The court acknowledged that a significant decrease of the cadastral value of a land plot located in the territory of a municipality may in some cases affect the rights and lawful interests of such municipality, including those relating to tax income being received by the local budget.
The legal regulations currently in force do not ensure sufficient guarantees to local government authorities in terms of protecting their rights and interests (when a matter is considered by a commission, local government authorities cannot appropriately present their objections: the regulations of the law on appraisal activities and the Russian Administrative Court Procedure Code7 do not enable the above authorities to challenge the decisions of the commissions).
Possible consequences
The decisions of the Russian Constitutional Court have direct effect. This means that now, a company in relation to which a commission has issued a positive decision cannot be sure that this decision will not be challenged. In addition, the legal positions formulated by the Russian Constitutional Court will be taken into account by courts considering similar cases.
No later than on 9 January 2017, the Russian Government must submit to the State Duma a draft law aimed at enforcing the above resolution8.
It should also be taken into account that on 3 June 2016 the Law on State Cadastral Valuation was enacted which takes effect on 1 January 2017 9. Accordingly, this law will be amended.
In our opinion, the possible amendments might be as follows:
1. The procedure for commissions of Rosreestr to consider motions may be specified. The Russian Constitutional Court pointed out that, according to current legislation, municipalities are virtually deprived of any opportunity to acquaint the commission with their position, which would be supported by an appraiser’s report, concerning the market value of a land plot.
2. Extended opportunities for state bodies of the constituent entities of the Russian Federation and local government authorities to challenge positive decisions of commissions. Amendments may be expected to article 22 of the Law on State Cadastral Valuation, as well as the provisions of chapter 22 of the Russian Administrative Court Procedure Code.
The Russian Constitutional Court has considered matters relating to the protection of rights of local government authorities in connection with decreases of tax income to the local budget. It could be assumed that similar guarantees will be granted to state bodies of the constituent entities of the Russian Federation owing to the fact that, according to the rules, 100% of the revenue from property tax is payable to the budget of the constituent entities.
It should be noted that, according to the provisions of the Law on State Cadastral Valuation, it is optional to address the commission before going to court with a claim that the cadastral value be revised, as well as to set up commissions in each constituent entity of the Russian Federation10.
PG's comment. We believe that, if such an approach remains, the amendments that will be made by virtue of the resolution adopted, will not result in negative implications for taxpayers who initiate challenges to the cadastral value.
Practice shows that the commissions of Rosreestr seldom make positive decisions when considering motions. Therefore, it could be advisable, after the new law takes effect, for companies to go directly to court, without a commission considering their issue.
When courts are considering companies’ requests for the cadastral value of real estate items to be changed, the state body or the local government authority which has approved the results of the assessment of the cadastral value will act as administrative respondents11. These parties may also become engaged in administrative proceedings as concerned parties at their own initiative, or upon a motion of the parties engaged in the case, or at the court's behest (article 47 of the Russian Administrative Court Procedure Code). Therefore, the court may grant to the above bodies the opportunity to state their position.
What to think about
In its Resolution No. 17-P dated 2 July 2013 and in certain other decisions, the Russian Constitutional Court has stressed that it is important that tax relationships be legally certain and regulated by legislation in a foreseeable manner; which ensures that they remain solid and stable, that the amount of tax obligations be known in advance, the principle of justified expectations be upheld toward the actions of state bodies, and other guarantees be observed of taxpayers’ rights with regard to the period for which legal acts that in any way influence taxation remain in effect.
In this respect, the question may be raised of whether it is acceptable to revise the tax base relating to the current and previous tax periods if the court revises the commission’s decision further to a motion of local government authorities.
Help from your adviser
Pepeliaev Group’s experts, together with professional appraisers we engage, will readily provide services to represent the client before commissions of Rosreestr and in court when cases are considered to challenge the results of assessments of cadastral value, including those initiated further to a motion of state bodies or local government authorities. Our law firm will also assist you in assessing the tax implications of the resolution passed by the Russian Constitutional Court.
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1 Resolution No. 15-P dated 5 June 2016 “Relating to a case on examining the constitutionality of the provision of part one, article 24.18 of the Federal Law ‘On appraisal activities in the Russian Federation’ in connection with a complaint from the administration of a municipality of the city of Bratsk”.
2 Resolution No. 13839/13 of the Presidium of the Russian Commercial (‘Arbitration’) Court dated 11 February 2014.
3 Appellate rulings of the Volgograd Region Court dated 21 November 2014 regarding case No. 33-5394/2014, dated 21 November 2014 regarding case No. 33-5387/2014, and dated 21 November 2014 regarding case No. 33-5386/2014.
4 Ruling of the Arkhangelsk Region Court dated 29 October 2015 regarding case No. 4a-171/2015, Decision of the Moscow Region Court dated 27 April 2016 regarding case No. 3а-391/2016.
5 Resolution No. 28 of the Plenum of the Russian Supreme Court dated 30 June 2015 "On certain issues arising when courts hear cases seeking that the cadastral value of real estate be invalidated".
6 Federal Law No. 135-FZ “On appraisal activities in the Russian Federation” dated 29 July 1998.
7 “Russian Administrative Court Procedure Code” No. 21-FZ dated 8 March 2015.
8 Article 80 of Federal Constitutional Law No. 1-FKZ dated 21 July 1994 "On the Constitutional Court of the Russian Federation”.
9 Federal Law No. 237-FZ “On State Cadastral Valuation” dated 3 July 2016.
10 Article 22(1) of Federal Law No. 237-FZ “On state cadastral valuation” dated 3 July 2016.
11 Clause 7, Resolution No. 28 of the Plenum of the Russian Supreme Court dated 30 June 2015 "On certain issues arising when courts hear cases seeking that the cadastral value of real estate be invalidated".