Advance ruling is a way for enterprises to find out Tax Administration’s view on a certain action before carrying it out. An advance ruling is a binding decision that specifies tax assessment procedures for the matter in question. Requesting an advance ruling is an advisable way to avoid subsequent unwelcomed differing interpretations with the tax authorities.
Requesting an advance ruling is also a viable tool for individuals, when planning actions with substantive economic significance or when it is open to interpretations how taxation will affect the action. An advance ruling can be requested concerning e.g. income tax, VAT, transfer tax, inheritance tax and gift tax. If you disagree with the received advance ruling, it’s possible to appeal. Both taxpayer and the authorities i.e. Tax Recipients’ Legal Services Unit may lodge an appeal.
Also, the Central Tax Board may give an advance ruling concerning income tax and VAT if it finds the case to be in generally of special importance or as a precedent. The Central Tax Board may also give a ruling because of some other especially important reason, e.g. when the amount of interest is significant for the tax payer.
There is no special time limit concerning processing an advance ruling, but the Tax Administration aims to process the applications as soon as possible. However, because of the varying handling times of the Tax Administration and the 30-day appeal period, it’s possible to receive legally final judgement in about 2-4 months. If the advance ruling is applied against, the process may take even a couple of years.
It’s possible to ask for written guidance free of charge on a separate VAT matter. It should be taken into account that it’s not possible to appeal against this written guidance.
In addition to the advance ruling and written guidance the Tax Administration may upon application grant an exemption permission to a company or a partnership to carry forward its losses, even when more than 50 % of the shares in a company or a cooperative society have changed hands for reasons other than inheritance or bequest. The application needs to include reasons why the exemption permission should be granted.
Requesting an advance ruling
An advance ruling needs to be requested in writing, but in other ways the application is free-form. The application should include as precise and specified question as possible concerning the business transaction that the ruling is applied for. It’s not possible to get a binding ruling concerning a general question, e.g. the market value of assets.
As a starting point, the advance ruling should be applied by the person, whose taxation the question concerns. Nevertheless, there are exceptions concerning certain taxes. E.g. an advance ruling concerning gift tax may be applied by both the giver and the receiver of the gift. Also appeal periods may vary. An advance ruling is subject to a charge.
If the amount of interest is significant for the taxpayer or there are issues open to interpretations, it’s advisable to request an advance ruling. Usually the planned actions have effects on the taxation of both the company and its owners, so the advance ruling may be requested for both parties at the same time.