In view of the current discussions on the amendments to the new Tax Code, Darian’s position is as follows:

The intention to modify the TC in the sense of taxing the Market Value of real estate, within the meaning of constructions situated on land is inapplicable from the following essential reason:

The real estate in the sense of a building / construction of any kind located on a land does NOT have market value as defined in Anevar or international professional standards.

In general, any real estate, namely building, is inseparably attached to a plot of land that is used for the duration of existence, that is, the economic life. We can speak of market value exclusively for real estate, namely the whole building + land ensemble, at least as long as the building, that is, what is legally built, has a considerable physical duration. In other words, according to the standards, the property is in the best use, respectively in “going concern”.

In Romania, the land, free or built, is recorded in the accounting situations distinctly. Its values take into account that the tax base, being determined empirically by local authorities according to location.

At present, the land – whether it is agricultural or outside the built-up area, or free of construction or built – is taxed according to its quality in the first situation or, empirically to its position within the locality, in the second. For lands within the built-up area, the tax value does not take into account the fact that the land is built or not, or the legal possibilities for development.

After the latest changes to the TC, the taxable value of buildings (constructions) is rigorously made by valuation experts and is based on standards that recommend using the depreciated cost method. Determining the value is based on the constructive type, materials, technology, depreciation, etc. reaching a taxable amount that provides rigorous, stable and predictable value to tax authorities, which is an advantage. Local authorities, by applying a tax rate that can range from 0.08-1.3%, can set their own fiscal strategy on budget revenues according to the actual situation.

The fact that the taxable value of the real estate (building) is transparently established, is valid over time, constitutes an important advantage.

If a tax base based starting from the market value is to be applied, it can only be applied to the construction + land ensemble, namely the real estate as a whole, which has the disadvantage of a higher dose of relativity, it is volatile depending on the evolution of the real estate market and it must also contain the land value a priori.

One disadvantage of the method can be that in times of instability, volatility or with a low-activity market (eg less favoured areas), the estimation of market value is difficult to quantify and has a low level of transparency.

In this situation there a delicate problem of the breakdown of the value of the land from the total market value of the property also occurs.

The tax value of a building is intrinsic to it and should not be influenced by the use or type of ownership (natural or legal person). Differences can be made according to the decision of the local authorities by using the tax coefficients, which are also in the current TC in a fairly wide range.

Conclusion:

The current taxation policy for buildings under the current method, which has already been applied for 3 years with results in increasing transparency and in line with the evaluation standards, could be continued.

Considerations on addressing taxable land value

In relation to land – there should be an analysis and discussion to replace the current empirical approach with one based on a market value for free lands within the built-up area, perfect for development – to allow them to be put into operation and to increase the level of real estate investment, respectively to increase the tax base. It is possible to link the taxable value and the market value of the urban land with the approved urban plans, which provide the legal basis and the development potential of these lands.

Dr. ec. Adrian CRIVII, FICS, REV, MAA
General director DARIAN DRS SA