Almost every economic decision taken by a private individual or a company has tax implications. On the other hand, tax legislation does not provide regulations for individual situations. Tax law is designed to be open and flexible so that it can be applied to as many economic situations as possible.
As a consequence, the exact application of tax law often remains questionable at the moment of a decision and the exact tax effects remain unclear until the decision of the tax authorities. Imagine a Major restructu-ring, extensive property sales or far-reaching inheritance matters, the tax consequences of which remain uncertain until the official decision is taken years later. This creates uncertainty and fears and often leads to a Blockade where important decisions by companies and private individuals are concerned. In order to pre-vent this blockade, Swiss tax law knows the instrument of tax rulings, which provides legal certainty in tax matters at the moment of the decision for the individuals and companies concerned.
What is a tax ruling?
The tax ruling is also referred to as a preliminary ruling and has ist origin in the cantonal practice of the tax authorities. It serves as a binding tax information obtained in advance (i.e. before the realisation / implemen-tation of a decision) from the tax authorities in order to ensure legal certainty for important decisions taken by the taxpayer(s). This fiscal information is given based on facts that are often complex and difficult to grasp. Within the framework of the ruling process with the tax authorities, the facts must be explained com-prehensively and precisely and assessed for tax purposes, with the aim of clarifying tax issues beforehand in connection with an economic decision. As an additional «side effect», this process also results in a con-structive and mutually valuable basis of trust for the further clarification of pending tax issues.
Formal and material requirements
The subject of a ruling can only be that which falls within the range of the legal even without a ruling. Tax authorities as well as taxpayers are bound by laws, ordinances, etc. The content is always what will later be 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, particularly in view of its probative value.
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.
To ensure that the communication with the tax authorities can take place at a professional level, the consul-tation of a tax consultant is recommended. The professionalism of the consultant in dealing with the tax authorities may have an impact on the chances of success of a matter, as specialists possess the necessary knowledge for the proper design of the rulings as well as the corresponding skills in communicating with the authorities. However, the sole correspondence with the authorities does not result in any costs for the per-son concerned, in contrast to the consultation of tax consultants.
The binding character of rulings is generally assessed on the basis of the correctness of the statements made by the tax authorities and the requesting party. The relationship between the parties involved in the
preliminary ruling is characterised by the principle of good faith (Art. 5 para. 3 BV). If the matters are imple-mented as described in the ruling, the taxpayer can classify the written information provided by the tax au-thority as binding. If the opposite is the case, the taxpayer is regarded as acting in bad faith - such conduct is not protected in legal transactions and the tax authority may carry out a tax assessment deviating from the preliminary assessment/ruling.
Should the tax authority itself provide incorrect information within the framework of the ruling, the binding nature of this assurance is also assessed on the basis of Art. 5 para. 3 BV, protection of legitimate expec-tations. The tax authority is bound by an unconditional assurance of the competent authority on a concrete matter if the recipient of the assurance was unable to recognise the defectiveness of the same and has al-ready made arrangements that can no longer be reversed or can only be reversed with disadvantage. Ulti-mately, a balancing of interests takes place between the interests of the protection of legitimate expectations 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.
Rulings have long been an integral part of local tax planning. This tradition will also be continued in the fu-ture. In contrast to states without exchange possibilities with the authorities, we benefit from this practice due to a relationship of trust with the tax authorities. The repeatedly expressed criticism of this administra-tive practice is wrong and incomprehensible, since «the ruling» is an important and valuable instrument for the constitutional implementation of tax law.
It remains to be seen whether the ruling practice can also spread to other areas of law. Due to the increa-sing complexity of our application of law and the affected areas of life, it cannot be ruled out that the prior obtaining of official decisions will also increase in other areas (e.g. social insurance).
The tax ruling as an (almost) unique feature of Switzerland in the international environment, and thus as a competitive advantage, is of considerable importance in this country. It facilitates the exchange with the authorities and allows appropriate solutions for all parties involved. Nevertheless, caution is still advised with regard to the requirements for the design of the rulings and the characteristic of legal certainty. If the explained requirements are not explicitly complied with, there is a risk of a deviating assessment. However, the ruling practice of the authorities is not carved in stone - the handling by the authorities should always be monitored vigilantly. The applicant must be aware of possible international exchange tendencies in connection with written tax information. The spontaneous exchange of information and Action Point No. 5 of the BEPS project are increasingly making tax information known across borders. The extension of the ruling practice to other areas of law could be of interest in the future.