Tax legislations of foreign jurisdictions, where a business is just starting its work, often can be quite confusing and complex. For this reason, many jurisdictions provide in their legislation the right of the taxpayer to obtain a preliminary explanation from the tax authority on a specific tax mechanism or transaction, called Tax Ruling.
Tax ruling allows business to determine in advance its rights and obligations as a participant in tax legal relations, to get an assessment of tax risks, as well as the level of the tax burden in a particular situation.
The procedure for obtaining tax rulings has long been introduced and worked out in the United States, the Netherlands, Estonia, Switzerland, and Cyprus. You can also get tax rulings in Singapore, Hong Kong, and Luxembourg. The procedures in some of these jurisdictions are listed below:
Cyprus
By Circular 2016/13, Cyprus has streamlined the procedure for requesting tax rulings by taxpayers. As part of such a request, you have to submit to the tax authority a standardized form TD219_2016 with an attached letter with a detailed request for which the taxpayer wishes to receive tax rulings. The state fee for processing and issuing tax rulings are as follows:
– €2000, expedited tax rulings within 21 days;
– €1000, standard tax rulings (no fixed timeframe, but based on practice it will take 3-4 months).
Netherlands
The tax authorities of the Netherlands consider the request for tax rulings within 8 weeks. This period may be extended if the inspector needs additional information to issue a tax ruling. After the tax authority approves the request, a binding agreement (“vaststellingsovereenkomst”) is executed between the taxpayer and the Tax Service of the Netherlands. In such an agreement, the terms and conditions of tax ruling are prescribed. The validity period of the tax ruling can be set for a period of up to 4-5 years.
Hong Kong
Consideration of the application for issuing tax rulings takes place in the order of the usual queue. However, the period of such review should not exceed 6 weeks. If the tax authority needs additional information to provide tax rulings, 6 weeks are counted from the date when the taxpayer provides such additional information. The request for taxing is made on the form IR 1297 (7/2018). The state fee varies from HK$10,000 to HK$30,000 and depends on the subject of the request.
Singapore
The request for tax rulings in Singapore is submitted in a separate form Advance Ruling Application for questions related to Income tax and in form F19 for questions related to GST. The review period is 8 weeks, the amount of the state fee is S$620.
Getting a tax ruling is one of the most reliable ways to determine the tax consequences of a transaction. In cases where the tax implications are unclear or questionable, getting a tax ruling may be the best solution. In addition, within the framework of obtaining tax rulings, it is possible to establish a preferential tax regime.
