Lands outside settlement boundaries are beyond the taxation due to submission of the Cabinet of Ministers of Ukraine
One of changes in the status of the land fee is related to the amendments introduced by the Law No. 71-VIII as of December 12, 2014 “On Amending of the Tax Code of Ukraine and some other legislative acts of Ukraine regarding tax reform”.
Until recently it was the national tax (subpara. 9.1.10 Article 9 of the Tax Code of Ukraine – hereinafter referred as “ the TCU”, “the Code”), and now it is a local tax (subpara. 10.1.1. Article 10) – in particular, tax on real estate which consists of 3 different taxes (Article 265 of the TCU), including land fee. Thus, the land fee becomes a local tax now.
The difference between the national-wide and local taxes is, in particular, that national taxes are mandatory within all the territory of Ukraine (para 8.2. Article of the TCU), and local taxes should be paid only within the territories of respective communities (para. 8.3. Article 8 of the TCU).
At the same time, the territory of respective communities is limited by the boundaries of respective residential area.
Thus, the Law of Ukraine “On Local Self-government” defines the community as citizens united by the permanent residence within the territory of village, settlement or city, which are self-governing administrative units, or a voluntary union of residents of several villages, which have a unified administrative center. In such a way, the law sets boundaries for the community within the territory of village, settlement, and city. Such division also coincides with the distribution of power of the local councils established by the demarcation of state and municipal lands according to the Law of Ukraine “On Amending Respective Legislative Acts of Ukraine regarding demarcation of lands of state and municipal property”, which had completed stealing of the land of local councils in favor of the state without agreement of such councils, initiated by the Land Code as of 2001. Prior to that, village councils were separate administrative units according to Regulations on the Procedure on Administrative Territorial Division of the Ukrainian Soviet Socialist Republic. The boundaries of village councils were wider than those of residential areas. In fact, all the territory of districts has been divided among village councils, which disposed of all land within these boundaries. However, the withdrawn Law of Ukraine “On Demarcation of Lands of State and Municipal Property” contained definition “territory of the village council”.
At present boundaries of communities of the city, settlement, and village completely coincide with boundaries of respective residential areas, which belong to such community. The Law of Ukraine “On Local Self-government” distinctly narrowed the list of communities by city, settlement, and village. District and regional communities currently do not exist.
Therefore, the territories outside residential areas do not belong to the territories of any community, and it means that local taxes, in particular, the land fee, are not the subject for payment regarding territories outside residential areas.
Thus, the Cabinet of Ministers of Ukraine actually put the land outside residential area beyond the taxation by changing the status of the land fee from national tax to local one.
Since the tax is local, such approach seems to be correct and meet generally accepted principle of absence of taxation without representation: taxpayers shall have the right to influence on adoption and amount of taxes, at least through the chosen representatives, and rural, settlement and municipal councils (which according to the Code adopt the decision on establishing respective local taxes) are elected exactly by the residents of such villages settlements, and cities. Therefore, it would be incorrect if the residents of such residential areas establish taxes through mentioned representative bodies for those who have no right on representation in these bodies.
Practically, it follows that regular owners and users of land plots, which are located outside of residential areas, from now on shall not pay the land fee. Lessors shall pay the land rent exclusively based on rent agreements; amount of the rent shall be the subject of agreement between parties and is beyond of control of fiscal bodies, as far as currently it does not have relation to the tax area.
These are the consequences arising from the steps of the Cabinet of Ministers of Ukraine regarding change of the status of the land fee, in particular, its change from general to local.
The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.