Courts will thoroughly analyze validity of cadastral valuation
On February 11, Presidium of the Supreme Commercial Court (SCC) overturned judicial decisions on dispute on the cadastral value of the land under the Krasnoyarsk Aluminum Plant (which is part of the world's largest aluminum company "RUSAL") and sent the case back for retrial. The company challenged cadastral value of the land, established to RUB 4.5 bln. Upon the results of an independent evaluation, confirmed by the Rosreestr Committee on Pre-trial Disputes, the cost of land has been reduced to RUB 1.06 bln. Krasnoyarsk Administration did not agree with the decisions of the courts of three instances.
Judge Panel of SCC pointed out that, despite formal compliance with procedures (self-regulation organization confirmed the established cost, all necessary documents have been submitted to the Committee authorizing the valuation), the courts must analyze validity and reliability of the valuation.
The Russian legislation provides the right to challenge results of the cadastral value to:
• natural and legal persons, provided these results affect the rights and obligations of such persons;
• public authorities, local authorities in respect to real estate of state or municipal property. SCC declared the right of city administration to challenge cadastral value, indicating that decisions of the Committee affect its rights and legitimate interests in economic activity.
Previously, disputes on challenging cadastral valuation had no perspectives for a positive result, however, at present time, considering formation of judicial practice in all regions of the Russian Federation, such disputes became relevant for land owners. At the same time, some title owners have been advantaging from the procedure and attract assessors deliberately underestimating the market value of the land plot. As a result, local governments receive fewer taxes due to low cost of land.
Today, cadastral value is used to establish rent rate and for tax purposes. According to Article 391 of the Tax Code, tax base for land tax is determined in respect of each land plot as its cadastral value as at 1 January of the year being the tax period.
Presidium of the Supreme Commercial Court (judgment of 28 June 2011 No 913/11) clarifies that the market value of land, established by court, shall be the ground for cadastral authority to apply such value as the new cadastral cost to the State Cadastre of Real Estate upon the entry into force of the judicial act. It appears that the cadastral value of the land under the Krasnoyarsk Aluminum Plant, as of 1 January 2011, in the amount of RUB 1.06 bln. was established in 2012 as a result of the entry into force of Decision of the Arbitrazh Court of Krasnoyarsk Region dated 03 December 2012. Furthermore, according to the position of the Federal Tax Service of Russia, dated 19 July 2013 No BS-4-11/13149 "On Land Tax", the company has been probably paying land tax estimated upon the new reduced cadastral value.
Thus, challenging of cadastral value provides title owners the opportunity to significantly reduce cadastral value of land that primarily result to substantial savings on land tax, reduced lease payments and reduced redemption price of the land.
However, in the light of the adoption of the SCC resolution on 11 February 2014, it shall be noted that until now the courts will pay more attention to the complex analysis of reasonableness of land valuation, considering not only the compliance to the process and to the Committee’s decision-making procedure, but also considering the merits of the decision and the evaluation of validity and reliability of particular market value approved by the Committee.
