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Analysis of Ukrainian Tax Inspection letter about payment of land tax

Payment of land tax in Ukraine

One of our Clients, owner of restaurant business contacted us after receiving a letter from a district Tax Inspection. The letter stated that our Client was obligated to pay land tax as owner of commercial premises in an apartment building and had to provide declarations about land tax payments from 2009 to 2012. The Client has not being paying this tax for the entire period.

The position of the Tax Inspection stated in the letter was based on:
  • paragraph 4 of Article 14 of the Ukrainian Law "On payment for land" (was in force until January the 1st 2011, hereinafter - the Law) "the land tax for a section on which a building, that is used by several legal entities or individuals is located, is to be paid by each user in proportion to area of the building that is used by him ";
  • section 287.8 of Article 287 of the Tax Code of Ukraine (hereinafter - TC) "Owner of commercial premises (part of it) which is located in an apartment building pays tax to the budget for the area under such premises (their parts) with consideration of the proportional share of area adjacent to a building since the date of real estate property ownership state registration. "

Thus general regulations of taxation obliged the Client to pay land tax during the mentioned period but our detailed analysis of legislation and litigation practice showed that there are several aspects that hinder adherence to the obligations by our Client:

1. Our Client was not taxpayer of land tax:

  • until the 1stof January 2011 the payer was defined as "owner of a land plot, land share and tenant, including rent payer" (part 2 of Article 5 of the Law);
  • when the Tax Code entered into force the land tax was defined as "compulsory payment levied on owners of land and land shares as well as permanent tenants" (Section 14.1.73 of Article 14 of the Tax Code).

Analysis of the legislation and particular situation showed that the Client does not fall under the definition of "land owner" or "tenant" / "permanent land tenant."

2. There are no grounds for land tax being levied:

The data from the State land cadastre serves as tax base (the regulation was stipulated in Article 13 of the Law and was also duplicated in the Tax Code – Section 286.1. of Article 286). Since the State land cadastre contains no data about our Client (he did not enter in rental agreement and did not receive certificate for permanent tenure) there were no legal grounds for the land tax being levied.

Moreover the Resolution of the Higher Commercial Court of Ukraine dated 25 September 2002 (case number 17-3-23/02-2063) confirmed our conclusion that in Client’s situation the land tax could not be levied without violation of the law.

Thus the analysis performed by lawyers of taxation practice provided the Client with legal grounds that allowed not to pay land tax voluntarily which saved him not only a lot of money but also time.

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