The case of PJSC OGK-2 is already the fifth this year on the topic of qualification of an object as immovable for taxation purposes to be referred to the Supreme Court of the Russian Federation. Ekaterina Kopylova, a tax consultant at Tax Compliance, analysed in a Kommersant review the positive trend that has emerged for business. 

Since September this year, the Supreme Court of the Russian Federation has already issued three decisions in which it confirmed the qualification of production equipment as movable property for property tax purposes and pointed out that the criteria of civil law should not be applied in taxation, as they have different purposes. 

For which enterprises is this issue particularly relevant? 

On the topic of distinguishing between movable and immovable property, it is impossible to single out any one industry - there are many disputes in the energy sector currently before the courts. However, this does not mean that the tax authorities cannot conduct audits of, for example, metallurgical companies and reclassify their fixed assets from movable to immovable. 

In this situation, all companies with fixed assets recognised as movable and having some connection with the land, for example, attached to a concrete base, are at risk of additional tax charges. 

The essence of the tax authority's claims

Article 381 of the Russian Tax Code provided for a corporate property tax exemption, exempting from taxation movable property taken into account after 01.01.2013 in order to encourage investment in new equipment. 

Corporate property tax is a regional tax, so the constituent entities of the Russian Federation, including the Sverdlovsk Region, issue their own laws on corporate property tax, which may detail the rules for levying this tax. 

However, at present this privilege is no longer available: Article 374 of the Tax Code of the Russian Federation was amended in 2019, and now only immovable property is subject to corporate property tax, while movable property is completely excluded from taxation. 

The position of the tax authority on the recognition of the power unit equipment as immovable property on the basis of their qualification as a single complex thing, in our opinion, is unlawful, since the criteria of civil law are not applicable for the purposes of calculating the property tax of organisations. 

In addition, the tax authority refers to the expert opinion that the disputed objects are immovable. However, an expert's opinion cannot provide a legal analysis and qualify an object of taxation, as it should only investigate technical issues, which was noted 5 years ago in the Lesozavod-25 case.

The taxpayer, on the other hand, insists that the accounting criteria should be applied to qualify property as movable, which is confirmed by the position of the Supreme Court of the Russian Federation in the Arkaim and Sebryakovcement cases. 

What decision can we expect? 

We expect a positive decision of the Supreme Court of the Russian Federation and confirmation of the approach previously voiced in the Arkaim and Sebryakovcement cases: equipment that has an independent production purpose may be recognised as movable property. Also, accounting criteria should be used for qualification. 

What does this case mean for business? 

The practice on disputes on qualification of property from movable to immovable property is still heterogeneous, even at the level of the Supreme Court there are rejection rulings supporting the position of the tax authorities in respect of a number of objects. The decision of the Supreme Court of the Russian Federation in this case may contribute to the formation of general criteria of real estate for the purposes of calculating property tax for organisations, but this seems unlikely due to the lack of a clear position of the Supreme Court in previous acts. 

At the same time, the practice in these cases is significant for all taxpayers who have production equipment exempt from taxation. Although the Court's decisions are not prejudicial, the developed approach can be applied to all disputes on the qualification of property.