The Local Taxes and Fees Act (“The Act”) is the legal basis, according to which the different types of real estates are declared and taxed. Even though the Act envisions the possibility for a legal entity to own residential properties as well as non-residential, in reality local departments in the municipalities repeatedly refuse to accept declarations for the residential properties of the legal entities on the pretext that they are used for economic activity. There are also a number of problems when declaring parking spaces. In such cases, the National Revenue Agency (NRA, “The Agency”), based on the National Revenue Agency Act, can interpret the regulations of the Local Taxes and Fees Act in order to clarify them, when necessary. In such clarifications the NRA answers questions regarding the declaration and taxation of parking spaces and real estates, owned by legal entities, that are residential properties by purpose. We will discuss two guidelines given by the NRA regarding the declaration of parking spaces and residential properties, owned by legal entities, as well as what are the powers of officials, working in the Local Taxes and Fees Directorates when it comes to application of declarations under Article 14 of the Act.
Declaration and taxation of parking spaces under the Local Taxes and Fees Act
In order to answer this question, The Agency focuses on the legal status of the parking spaces as objects. The NRA, based on judicial and notarial practice, accepts that parking spaces are not real estates, as they are not “separate and independent real part of the property in the context of property law” (Statement of the NRA of 10 November 2011), and because of that they cannot be the subject of transfer transactions. According to the case law, parking spaces, located in covered parkings or garages, are independent objects in the condominium and thus the transfer transactions with them are valid. As an exception from the main case, if the covered parking or garage is located in the condominium building, the transfer transactions with them are considered transfer transactions for ideal parts of the building. As for the taxation, the Agency holds that parking spaces that are located in covered parking or garages should be declared as ideal parts of the parking, or garage.
On the other side, the NRA holds that when the parking spaces are parts of the lot, on which the condominium building is built, the transactions with them are null and void. The Agency accepts that a parking space cannot be acquired by ceding the right to construct a building or by establishing the right of use before the establishment of the condominium, because the parking space itself does not qualify as a building within the meaning of the Spatial Development Act, when it is only an addition to a building – the right to construct a building can have as its subject only an existing object of the law and the Agency shares the opinion that parking spaces are not such objects. According to the stated opinion, the NRA announces that parking spaces that are parts of the lot, on which a condominium building is built, should not be declared as individual objects or as ideal parts of the lot.
Residential properties, owned by legal entities
Answering an inquiry, the NRA also clarifies the issue of real estate, residential by their purpose, that are owned by legal entities. The specific inquiry relates to real estates that the legal entity rents out for short-term and long-term accommodation and part of which are registered or categorized under the Tourism Act. In the inquiry it is asked as well if the tax assessment or the book value of the property should be taken into account when the tax based is being determined.
In relation to the determination of the tax base, the NRA holds that according to Application No. 2 to the Local Taxes and Fees Act, for the residential properties of enterprises, their tax assessment is taken into account, while for their other properties the higher between the tax assessment and the book value of the real estate is used.
When it comes to the main subject of the inquiry, the Agency states that since the Local Taxes and Fees Act does not include definitions of the terms “residential” and “non-residential”, it is necessary to refer to the legal notions given in the Spatial Development Act. According to them, “every dwelling unit must have a separate entrance, at least one residential premise, a kitchen or a kitchenette and a bathroom, as well as a cellar which may be located inside or outside the dwelling unit”.
- Therefore, real estate, intended to satisfy housing needs and meet the definition, given by be Spatial Development Act, are qualified as residential, as long as they are rented out for long-term accommodation.
- Regarding the real estates, that are rented out for short-term accommodation (like AirBnB, Booking), the NRA accepts that they should be qualified and taxed as non-residential, since an economic activity is carried out by using them. The Agency uses the argument that in order for it to be rented out for short-term accommodation, the residential property should be registered as a tourist site.
In its answer to the inquiry, the NRA states unconditionally that the law originally envisions a differentiation, based on the purpose of the property and not its ownership – in is not relevant to their declaration and taxation whether the real estates are owned by a person or by a legal entity.
Actions in the declaration of the properties
When submitting a tax return under Article 14 of the Local Taxes and Fees Act, the officials that accept the declarations are obliged to give assistance with the filing of the declaration, when such is requested. Officials can also require additional information on the taxable property, if during the inspection of the declaration, such proves to be necessary. The Act provides for powers of the municipal bodies to check and request additional documents, but this is after submission of the declaration under Art. 14 of the Act. When irregularities are discovered, the authorities can issue an act against the legal entity, which can be appealed administratively and judicially.
Quite often, when submitting the declarations, the municipal employees overstep their powers, as they instruct the declarators to fill a part of the declaration, that should be filled only when non-residential properties are declared, and the officials otherwise refuse to accept the declarations. With that, not only they violate a specific provision of the Tax and Social-Insurance Procedure Code – according to which the acceptance of the declaration is an obligation of the officials and can be denied only if it is not signed, if it is not submitted by an authorised person or if it does not contain the required identification data – but they also make the declaration of the properties as residential impossible, since the case law accepts that when the aforementioned part of the declaration under Article 14 of the Local Taxes and Fees Act is filled, the property is non-residential, and the person that has filled and signed the declaration can not object to its content, as it is legally binding to him.
So even when both the case law and the NRA itself in its guideline state explicitly that official do not have the right to instruct the declarators what facts and circumstances they should include in their declarations and that the refusal to accept a tax return – except in the explicitly stated cases, is illegal, enterprises often turn out to be forced to declare their properties, that are undeniably used for residential purposes, as non-residential, without then being able to defend their rights effectively or to object to the taxation of the real estate as such.
If the employees refuse to accept the declaration, it is possible to appeal their very action before the higher administrative body and the court.