What is a tax ruling?

As a result, the exact application of tax law often remains questionable at the time of the decision, and one remains in the dark about the exact tax implications of a decision until the position/assessment of the tax authorities. For example, imagine a major restructuring, extensive property sales or far-reaching inheritance matters whose tax implications remain uncertain until the official assessment is made years later. This creates uncertainty and anxiety and often leads to a blockade in important decisions for companies and private individuals. To prevent this blockade, Swiss tax law knows the instrument of the tax ruling, which means legal certainty in tax matters for the individuals and companies concerned at the moment of the decision.

Definition tax ruling

The tax ruling is also called preliminary ruling and has its origin in the cantonal practice of the tax authorities. It serves as a preliminary (i.e. before the realization/implementation of a decision) and binding tax information obtained by the tax authorities, the legal certainty in important decisions of the taxpayer or the taxpayers. The basis of this information is a set of facts - often complex and difficult to grasp. In the context of the ruling process with the tax authorities, the facts must be presented comprehensively and concretely and analyzed from a tax point of view, with the aim of creating clarity in advance in tax matters in connection with an economic decision. As an additional "side effect", this process simultaneously results in a constructive and mutually valuable basis of trust for the further clarification of open questions concerning taxes.

Formal and material requirements

The subject matter of a ruling can only be that which is legal even without a ruling. Tax authorities as well as taxpayers are bound by laws, ordinances, etc.. The content is always what is later determined in assessments and tax returns for a taxable person. Formally, the ruling must always be addressed in writing to the competent authority or department of the cantonal or federal tax offices - primarily due to the suitability of evidence.

From a material point of view, it is essential to name the taxable person concerned for the purposes of identification and to provide a thorough and detailed account of the decisive facts and legal classification. Only in this way can such a preliminary decision become binding.

In order to ensure that communication with the tax authorities takes place on a professional level, it is recommended that a tax advisor be consulted. The professionalism of the advisor in dealing with the tax authorities may have an impact on the chances of success of a request, because specialists have the necessary knowledge for the proper structuring of the ruling as well as the corresponding skills at the level of communication with the authorities. Correspondence with the authorities alone, however, does not result in any costs for the person concerned, in contrast to consulting tax advisors.

Commitment

The binding nature of rulings is basically assessed according to the correctness of the statements made by the tax authorities and the requesting party. The relationship between the parties to the preliminary ruling is characterized by the principle of good faith (Art. 5 para. 3 BV). If the facts of the case are implemented as described in the ruling, the taxpayer may consider the written information of the tax authority as binding. If the opposite is the case, the taxpayer is considered to be acting in bad faith - such behavior is not protected in legal relations and the tax authority may make a tax assessment that deviates from the preliminary ruling.

Assuming that the tax authority itself provides incorrect information in the context of the ruling, the binding nature of this assurance is also assessed on the basis of Art. 5 para. 3 of the Federal Constitution, the protection of legitimate expectations. In the case of an unconditional assurance by the competent authority, the tax authority is bound to a specific fact if the recipient of the assurance was not able to recognize the defectiveness of the same and has already made dispositions that can no longer be reversed or can only be reversed with disadvantage. In the end, a balancing of interests takes place between the interests of the protection of confidence and the legality of the process.

It is important to note, however, that the validity of rulings cannot last beyond a change in the legal situation. If the legal situation changes, an unlawful preliminary ruling can no longer enjoy any protection.

Trend

Rulings have long been an integral part of the local Tax Planning. This tradition will be continued in the future. In contrast to countries without the possibility of exchanging information with the authorities, we benefit from a relationship with the tax authorities that is characterized by trust. The repeated criticism of this administrative practice is wrong and incomprehensible, as "the ruling" is an important and valuable instrument in the implementation of tax law in accordance with the rule of law.

It remains to be seen whether the practice of obtaining rulings will also flow into other areas of law. Due to the increasing complexity of our application of the law and the areas of life affected, it cannot be ruled out that the prior obtaining of official decisions will also increase in other areas (e.g. Social Security).

Conclusion

Tax rulings are (almost) unique to Switzerland in the international arena and therefore enjoy considerable importance in this country as a competitive advantage. It facilitates the exchange of opinions with the authorities and enables appropriate solutions for all parties involved. However, caution is required with regard to the requirements for the design of the ruling and the characteristic of legal certainty. If the explained requirements are not explicitly met, there is a risk of a different assessment. However, the authorities' ruling practice is not set in stone - the handling by the authorities should always be monitored closely. The applicant must also be aware of possible intergovernmental exchange tendencies in connection with written tax information. With the spontaneous exchange of information, introduced as part of action point 5 of the BEPS project, tax information is increasingly being made known across borders. In future, the extension of the ruling practice to other areas of law could be interesting.