Tax authorities are demanding that Yelena Baturina's developer Inteko pay 365 million rubles ($11.9 million) for newly built apartments that have not yet been registered with their owners, setting the stage for a potentially key court ruling.
Previously, builders only paid taxes for apartments they had sold after the registration process was completed. If Inteko is unable to overturn the tax ruling in court, other companies could run into similar claims, experts said.
Inteko is challenging a decision from Dec. 31, 2009, by Interregional Tax Service No. 3 in Moscow Arbitration Court. The service's decision orders Inteko to pay fines and penalties of 365.49 million rubles by April 19 as a result of the service's on-site check into Inteko's work in 2007 and 2008.
According to the court documents filed by Inteko, immediate seizure of the sum would cause significant material damages to the company.
"The uncontested withdrawal of the tax sum would prevent the full and timely payment of planned taxes … payment of salaries to the claimant's employees, as well as payments to suppliers," the company said in its suit.
The court proposed that the company offer a compromise payment of 50 percent of the sum sought by the tax service, the court documents said.
The lion's share of claims from Interregional Tax Service No. 3 are caused by unjustified additional claims for taxes, fines and penalties on the company's construction and investment operations, Inteko spokesman Gennady Terebkov said.
The tax service felt that Inteko should pay profit tax and value-added tax on property sold in its new buildings that have already passed state inspection, which is where Inteko disagrees, he said.
"Expenses on investment activities should be counted from the moment their results are handed over to the participants in the investment process, not when the construction is finished. Calculations of expenditures at an earlier period excludes the addition of further taxes and penalties. That position is supported by clauses in the Tax Code and the opinion of the Finance Ministry," Terebkov said.
Vedomosti was unable to get a comment from the tax service.
In construction deals where the apartment buyers are registered as equity investors, under Federal Law No. 214, VAT and profit tax are incurred after the agreement is registered with Federal Registration Service.
In deals where the construction is financed through sales contracts signed later, VAT is paid after the transfer of property is registered, said Maria Litinetskaya, chief executive of Miel Novostroiki.
She said that to her knowledge, Inteko sells the majority of its apartments through sales contracts.
Vladimir Bukarev, a partner at the law firm Barchevsky and Partners, said that in 2008 and 2009, similar tax claims were made against PIK Group, but the company was able to resolve the matter.
A spokesperson for PIK was not immediately able to comment on the matter.
The Supreme Arbitration Court has issued decisions that essentially classified preliminary sales contracts as agreements to participate in construction as an equity investor, Bukarev said. In that case, the court could side with the tax officials.
If Inteko does not win the ruling, the tax service could file analogous claims against all builders, since they all use the same investment arrangements, he said.
Vadim Zlobin, a partner at the law firm Yustina, said there was a reasonable argument for requiring VAT payments once construction work on a building is complete. Otherwise, it would be possible to not pay the tax if, for some reason, the apartments were never registered as someone's property, he said.
Inteko's loan debt as of Dec. 31, 2009, was 19.76 billion rubles ($642.3 million), while its obligations — including expenses to complete construction — stood at 80.37 billion rubles. As of April 13, 2010, the company had 3.6 million rubles ($117,000) of cash on hand.
Inteko, which had revenue of 54 billion rubles in 2009, is 99 percent owned by Baturina, wife of Mayor Yury Luzhkov. The remaining 1 percent is held by the builder.