International Accounting

Transactions with real estate: Tax and non-tax implications

Vol. 21, Iss. 7, JULY 2018

Received: 4 December 2017

Received in revised form: 16 April 2018

Accepted: 1 June 2018

Available online: 16 July 2018

Subject Heading: Tax and taxation

JEL Classification: Н25, Н26

Pages: 822–837

Lavnik R.V. OOO Mostaks, Moscow, Russian Federation

ORCID id: not available

P'yanova M.V. Financial University under Government of Russian Federation, Moscow, Russian Federation

ORCID id: not available

Importance As prescribed by new amendments made to the real estate tax treatment on January 1, 2014, real estate taxes shall be assessed on the basis of cadastral value of items. Having to bear greater tax burden, agents of real estate transactions need to optimize consequences of such transactions.
Objectives The research aims to study tools taxpayers use to optimize their tax burden when handing real estate deals and related tax and legal risks.
Methods Based on methods of description and generalization, we identify certain areas for tax burden optimization, which agents of real estate dealings use, and determine strengths and weaknesses of each tool, inherent risks. Pre-trial and court proceedings of cadastral value disputes were examined through methods of comparison, statistical data analysis, our own assessments.
Results We note a common tendency of growth in the number of taxpayers who litigate the cadastral value of real estate. We also identify tax implications of real estate alienation by category of taxpayers and property purpose. The article presents tax and legal risks of agents of real estate dealings in case when real estate is sold at an implausible price.
Conclusions It is legitimate and effective to decrease the cadastral value of real estate items to regulate the tax burden of owners, however it has some constraints. Legal and business structure and applicable tax treatment determine whether property alienation is reasonable. There is no unambiguous legal practice in deals when property is appraised below the market value, thus making it difficult to forecast unfavorable tax and other consequences.

Keywords: real estate taxation, cadastral value, court action, tax implication, property alienation, tax risk


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