Tax assessments annulled for 40 hectares of arable land

Two affiliated companies we represented own 40 hectares of land situated within the built-up area (intravilan), registered under the land-use category arable.

The local authority calculated the tax by applying the regime for land with buildings. This incorrect classification generated considerably higher tax liabilities and the accumulation of significant interest and penalties.

Following the challenges we filed, the courts ordered the annulment of the tax assessments and the recalculation of the tax according to the actual land-use category. The judgments are final, and the amounts have already been refunded.

The tax issue

The fact that a plot lies within the built-up area does not automatically mean it is land with buildings. The companies' plots were located within the built-up area, but were registered as arable and were used for agricultural activities.

In the version applicable to the period under review, Article 258 of the former Romanian Fiscal Code established a distinct regime for land within the built-up area registered under land-use categories other than land with buildings. For legal entities, the application of that regime also depended on carrying out agricultural activity and on recording the related income and expenses in the accounts.

The legal strategy

We built a coordinated strategy for the two companies, aimed at proving both the actual land-use category of the plots and the fulfilment of the applicable tax conditions.

The analysis covered:

• the title deeds;
• the cadastral documentation and land register records;
• the land-use category of the plots;
• the agricultural records;
• the financial statements and accounting documents;
• the income and expenses resulting from the agricultural activity.

In the course of the proceedings, accounting expert reports were also produced. The evidence confirmed that the companies were carrying out agricultural activities and had recorded the related income and expenses in their accounts.

In addition, while the case was pending, we took the necessary steps to implement the legal remedies concerning the tax amnesty and the cancellation of the accumulated penalties.

The courts' ruling

The courts found that the local authority had applied a tax regime inconsistent with the actual land-use category. The claims were upheld, and the courts ordered:

• the annulment of the contested tax assessments;
• the issuance of new tax instruments;
• the recalculation of the tax for the two companies' plots;
• the application of the tax regime corresponding to arable land within the built-up area;
• the refund of the amounts paid under the annulled tax claim titles.

The outcome

Following the annulment of the unlawful tax assessments and the subsequent steps taken:

• over RON 150,000 was refunded;
• ancillary tax liabilities of over RON 340,000 were cancelled;
• the combined financial impact exceeded RON 490,000.

The case confirms that an apparently technical tax classification can have major consequences for a company's assets. Where the actual land-use category does not match the treatment applied by the authority, the tax assessment must be analysed and challenged within the legal deadline.