Tax rulings: security with pitfalls

Tax rulings and protection of legitimate expectations

A tax ruling is binding information from the tax authorities on the tax treatment of a planned, specific and tax-relevant situation in response to a corresponding request from the taxpayer. According to the intention of the tax ruling, the aim is to achieve a legally compliant assessment.

The present article deals with the question of the extent to which tax rulings constitute a case of application of the general protection of legitimate expectations. The information provided by the tax authorities is to be regarded as provisional information that can trigger legal consequences vis-à-vis the authorities in accordance with the generally recognised principles of good faith (Art. 9 BV). It should be noted that tax rulings can concern both individual matters (e.g. reorganisations) and permanent matters (e.g. tax exemptions).

Requirements based on a tax ruling

The protection of legitimate expectations on the basis of a tax ruling is subject to the following cumulative requirements:

• The information from the tax authority is provided in writing and must relate to a specific situation affecting the taxpayer.
• The facts of the case have not yet materialised.
• The tax authority providing the information must be competent to do so.
• All facts relevant to the tax assessment (including those unfavourable to the taxpayer) are mentioned in the tax ruling.
• The taxpayer has acted in reliance on this and his actions cannot be reversed without disadvantage.
• The implementation is carried out in accordance with the facts set out in the tax ruling.
• The legal situation has not changed in the meantime.

Possible pitfalls of tax rulings

The following are examples of possible problem areas. The following list could be supplemented in many ways.

Tax reservations and protection of legitimate expectations 

A tax ruling can only have legal effects in terms of the protection of legitimate expectations for the facts stated in it. If, for example, a relevant factual feature changes or is subsequently omitted, or if the tax ruling is not implemented as described, the protection of legitimate expectations will lapse without further ado (i.e. without cancellation).

The correct order in the tax ruling 

If a tax ruling covers several transactions, the described sequence must be observed during implementation. This is because a transaction sequence that deviates from the described sequence may have unintended tax consequences.

Recognition as a central element in tax ruling

In tax law, the principle of authoritativeness applies, according to which accounting in accordance with commercial law is generally also decisive for the tax assessment. For this reason, tax rulings regularly refer to the accounting treatment of a transaction. This is a crucial fault that must be taken into account during implementation.

Tax retention periods

Individual circumstances can trigger restrictian periods. During such restrictian periods, certain actions must be refrained from in order to avoid unfavourable tax consequences.

Tax rulings with permanent facts

Tax rulings relating to a permanent matter enjoy protection of legitimate expectations until they are revoked by the competent tax authority in general or in individual cases. The tax authority may also make the approval of the tax ruling subject to a time limit.

Protection of legitimate expectations in tax rulings

The protection of legitimate expectations in a tax ruling lapses without further ado (i.e. without cancellation by the competent tax authority) if the relevant legal provisions change, a case law leads to an adjustment of administrative practice or the time limit set by the competent tax authority when approving the tax ruling has expired. In these cases, therefore, neither a cancellation nor a revocation of the tax rulings concerned by the tax authority is required.

Transparency in tax rulings

For certain categories of tax rulings, it should be noted that since 1 January 2018, Switzerland has been exchanging information on tax rulings with other contracting states spontaneously, i.e. without prior request, on the basis of the Convention on Mutual Administrative Assistance in Tax Matters (known as MAC). In order to implement the spontaneous exchange of information, the FTA has developed a digital platform on which the relevant tax rulings are to be recorded.