A tax ruling is a prior agreement concluded between a taxpayer — or their representative — and a tax authority, concerning the tax treatment of a planned transaction or situation. An instrument of legal certainty, it makes it possible to obtain confirmation from the competent authority on the interpretation it will apply to tax law in a specific situation, before the transaction is carried out. PBM Avocats negotiates and obtains tax rulings in Geneva and Lausanne on behalf of individuals and companies, in the context of restructurings, complex transactions and wealth planning.
Legal Bases for Tax Rulings Under Swiss Law
Unlike certain countries (France, Belgium, Netherlands), Switzerland does not have a specific law regulating tax rulings. Their existence and binding force rest on the constitutional principle of protection of good faith (art. 9 FC), which prohibits authorities from reneging on assurances they have given to an individual, when the latter has acted in reliance on those assurances. The jurisprudence of the Federal Supreme Court has progressively clarified the conditions under which an assurance from the tax administration is binding on it.
In practice, the ruling takes the form of an exchange of correspondence: the taxpayer addresses a written request precisely describing the situation and the desired tax treatment, and the tax authority responds by confirming, modifying or refusing that treatment. The request must be made before the transaction is carried out, as a ruling in principle only has effect for future transactions. A ruling granted by a cantonal authority does not bind the Federal Tax Administration for federal direct tax, and vice versa.
Application Procedure and Content of a Ruling
The preparation of a ruling request requires an in-depth legal analysis of the situation concerned and a presentation of the facts that is both complete and precise. Any omission or imprecision in the description of the facts may deprive the ruling of its binding effect if the situation actually carried out proves different from that described. The request generally includes: a description of the parties concerned, a presentation of the structure of the planned transaction (with possible organisational diagrams), the specific tax questions posed to the authority and, where applicable, the proposed tax treatment that the taxpayer considers applicable.
The tax authority examines the request and may request additional information. It issues its response in writing within a period that varies depending on the complexity of the file and the workload of the administration. In the cantons of Geneva and Vaud, the tax administrations have developed a practice of rulings that confers on them a certain reputation for fiscal predictability for investors and entrepreneurs. PBM Avocats manages the entire process, from preparation of the request to receipt and analysis of the authority's response.
Binding Force and Limits of the Ruling
When the four jurisprudential conditions are met (precise assurance, taxpayer's good faith, steps taken, absence of legislative amendment), the tax authority is bound by its prior position. Concretely, if upon taxation the taxpayer establishes that their situation corresponds exactly to the facts described in the ruling and that they acted in conformity with it, the taxation authority cannot impose differently from what was agreed.
The limits of the ruling are important to know. It binds only the authority that granted it and only for the specifically described situation. It loses its binding force if the law is amended in a manner incompatible with the agreed treatment, or if the facts actually carried out diverge from those set out in the request. A ruling obtained on the basis of inaccurate or incomplete information does not protect the taxpayer. Nor does it constitute authorisation to proceed with illegal operations or operations contrary to public order.
Rulings and International Transparency Standards (BEPS)
In the context of the OECD BEPS Project (Action 5: harmful tax practices), Switzerland has committed to spontaneously exchanging information on certain categories of rulings with the relevant partner states. The primary targets are rulings granted to multinational groups that have an impact on the tax situation of foreign entities of the same group, notably advance pricing agreements for transfer pricing (APA), rulings on the taxation of permanent establishments and rulings on preferential regimes. This spontaneous exchange aims to ensure transparency on the tax practices of states and to combat aggressive tax planning on an international scale.
For foreign entrepreneurs and investors establishing themselves in Switzerland, the possibility of obtaining a prior ruling on their structure constitutes a significant advantage in terms of legal certainty. PBM Avocats assists its clients in the design and implementation of tax-optimised structures secured by ruling, taking into account the international standards in force.
Frequently Asked Questions on Tax Rulings
Is a tax ruling binding on the Swiss tax administration?
A tax ruling is not regulated by a specific law under Swiss law, but its binding character derives from the constitutional principle of good faith (art. 9 FC). According to the jurisprudence of the Federal Supreme Court, the tax administration is bound by a ruling granted by the competent authority when four conditions are met: (1) the authority provided a precise assurance to the taxpayer on a concrete situation; (2) the taxpayer could not have recognised that the authority's position was legally erroneous; (3) the taxpayer took steps in reliance on this assurance; (4) no legislative amendment has occurred since. If these conditions are met, the administration is in principle bound by its prior position.
Which authority is competent to grant a tax ruling in Switzerland?
For cantonal and municipal taxes (income tax, wealth tax, profit tax, capital tax), the competent authority for granting a ruling is the cantonal tax administration of the canton concerned — generally the cantonal tax administration (AFC) of Geneva for taxpayers domiciled or established in Geneva, or the cantonal tax administration (ACI) for Vaud taxpayers. For federal direct tax and VAT, the competent authority is the Federal Tax Administration (FTA). For customs law and withholding tax matters, it is also the FTA.
Does the automatic exchange of information cover Swiss tax rulings?
Yes, in certain cases. Switzerland has committed, in the context of the OECD standard on transparency of tax rulings (BEPS Action 5), to spontaneously exchange information on certain types of rulings with the relevant partner states. Rulings subject to spontaneous exchange include notably agreements on preferential regimes, rulings on transfer pricing (APA), and certain rulings granted to entities belonging to an international group. On the other hand, purely domestic rulings concerning situations without an international dimension are not subject to automatic exchange.
How does the tax ruling application procedure work?
The ruling request is addressed in writing to the competent tax authority, before the planned transaction is carried out. It must precisely and completely describe the factual and legal situation (parties concerned, structure of the transaction, amounts, calendar), clearly pose the tax question(s) to which an answer is sought and, where applicable, propose the tax treatment that the taxpayer considers applicable. The tax authority generally responds in writing, indicating whether it confirms, modifies or refuses the proposed treatment. In the event of confirmation, the ruling takes effect for the described situation, subject to the actual implementation conforming to the facts set out.
Can a tax ruling be challenged after it has been granted?
Yes, in certain circumstances. The tax authority may reconsider a ruling if: (1) the facts actually carried out differ from those described in the request; (2) a legislative amendment occurs that makes the agreed treatment contrary to law; (3) the ruling is based on inaccurate or incomplete information provided by the taxpayer. On the other hand, if the facts conform to those described and the law has not changed, the principle of good faith in principle protects the taxpayer who acted in reliance on the ruling. PBM Avocats recommends carefully documenting the implementation of the transaction in order to be able, if necessary, to invoke the ruling in the event of a tax audit.