If the Constitutional Court of Montenegro declares Article 3, paragraph 2, indent 2 of the Law on Real Estate Tax unconstitutional, which relates to the taxation of buildings under construction and other buildings, Montenegrin municipalities would face major financial problems that most of them would be unlikely to be able to resolve.
This was officially told to "Vijesti" by the community of the municipality of Montenegro.
By the decision of the Constitutional Court of Montenegro of December 25, 2024, proceedings were initiated to review the constitutionality of Article 3, paragraph 2, subparagraph 2 of the Law on Real Estate Tax in the part that reads: “buildings under construction” and in the part that reads: “and other buildings”, at the initiative of two lawyers from Podgorica and Bar.
The Constitutional Court merged the initiatives into a single proceeding because the same provision of the law is being challenged.
The disputed article defines that the subject of taxation are construction facilities, which include business, residential, residential-business, facilities under construction, auxiliary, immovable temporary facilities and other facilities.
"The proceedings before the Constitutional Court are ongoing, but if the provisions were declared unconstitutional, municipalities would have to suspend the initiated procedures for the collection of all final and binding decisions on real estate tax for buildings under construction and other buildings that were adopted on the basis of this provision, and they would not be able to initiate new ones. This would cause municipalities enormous problems and financial expenses, and would also create the possibility for certain law firms to, by submitting requests for the amendment of these decisions, collect millions of euros from municipalities again, as was the case in the case of the collection of costs of administrative proceedings and administrative disputes when, using legal gaps and inappropriate legal solutions in several tax laws, errors in data that abound in the real estate cadastre and the central population register, but also unlimited possibilities for abuse of the right to free access to information, they filed standard complaints and lawsuits and thus devastated municipal coffers," the Association of Municipalities pointed out.
It is undeniable that buildings under construction must be taxed in different phases of construction, so if this obligation were to be deleted, municipalities would suffer enormous damage and, as stated by the Municipal Association, additionally, investors would have the opportunity to circumvent the law by interpreting phased construction differently, exceeding the permit, changing investors or using different accounting options such as "investments in progress" or "goods in stock", which are often used in practice, which the legislator must prevent in the public interest.
"In order to make this possible and prevent irreparable financial damage to municipalities and the opening of the way for the enrichment of certain law firms, the Association of Municipalities urges that the Parliament of Montenegro, which is the only one legally able to do so, as soon as possible submit a request to the Constitutional Court of Montenegro to, legally speaking, stop the procedure for assessing constitutionality, and that the highest legislative body, within the deadline set by the Constitutional Court, urgently adopt the Proposal for a Law on Amendments to the Law on Real Estate Tax, which would correct the observed unconstitutionality and resolve the problem in the only possible legal way, without harming the municipalities," the Association of Municipalities stated.
The Constitutional Court, in its Decision initiating the procedure for the review of constitutionality, determined, according to the Union of Municipalities, that the disputed provision does not clearly regulate when the tax liability arises, whether at the moment of the construction registration or after registration in the real estate cadastre, and whether the elements for issuing a decision on the tax on unbuilt structures are determined from the technical documentation in the Central Construction Register that contains these elements.
"The law must also establish criteria for their taxation, such as market value, size, location and quality, i.e. it cannot be left to municipal assemblies to regulate this themselves. Although the provisions of Article 13, paragraphs 3, 4 and 5 of this law regulate the aforementioned issues, such as the deadline for calculating the tax, which is different for natural and legal persons, as well as the business books on the basis of which it is determined, the aforementioned provisions need to be specified and the deadline for natural and legal persons equalized," the Association of Municipalities believes.
The controversial issue of taxation of illegal buildings
The Union of Municipalities said that the Constitutional Court also questioned the taxation of illegal structures under construction - whether they are taxed, at what point, and on what basis their area is determined.
"These issues, although partially regulated by the provisions of Article 4, paragraph 4 of the Law, should also be supplemented in the future proposal. "Other objects" from the disputed Article 3, paragraph 2, indent 2 of the Law must be precisely regulated by law because leaving the regulation of this issue to local decisions is contrary to the constitutional provision that taxes can only be introduced by law, and contrary to the principle of separation of powers. Namely, the legislator cannot transfer the authority to regulate all substantive legal issues of a certain tax to a local self-government body because this enables their unacceptable arbitrariness," said the Association of Municipalities.
The Secretariat of the Community will, as a form of support, for the needs of the Ministry of Finance and the Parliament of Montenegro, in a short period of time prepare the text of the proposal for a request to the Constitutional Court to stay the proceedings and the text of the Proposal for a Law on Amendments to the Law on Real Estate Tax.
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