Binding ruling

What it means

A binding ruling is a written answer from the Financial Directorate on how a tax rule applies to a specific transaction a company is planning. Unlike a methodological guideline or an answer over the phone, it binds the tax administrator.

It is tied to the facts set out in the application. If the transaction is eventually carried out differently, or the law changes, the protection falls away and the company defends its reading at a tax audit like anyone else.

A ruling is not a decision: no appeal lies against it and it binds the company to nothing. If the answer does not suit, the company may structure the deal differently or drop it altogether. It binds only the Financial Administration, and only for a transaction carried out exactly as the application described it.

How it works in practice

The application goes in beforehand, for a planned transaction, and carries a fee; a taxpayer with the best tax reliability index pays half of it. The Financial Directorate normally answers within sixty days, and longer in complex cases with the applicant’s consent.

It earns its cost where the amount is large and the reading contested: place of supply in chain transactions, creation of a permanent establishment, the deductibility of an expense. For a transfer pricing method there is a separate tool, advance approval of the method.

We prepare the application as a short analysis: a full description of the planned transaction, draft contracts, a precisely framed question, for example on the place of supply, and our own reading with the reasoning behind it. The more exactly it states who supplies what, when and for what, the less room there is later for reality to drift from the description.

What to watch out for

A ruling protects exactly as far as the application described. Describe the plan loosely to keep your options open and the audit will find that what actually happened diverged from the description: the ruling does not apply, the fee is gone, and the assessment dispute starts from zero.

The company signs the contract before the answer arrives, because the deal will not wait. If the ruling goes against it, the transaction is already running, the price was agreed without the tax that will now be due, and the ruling has merely confirmed what it will cost. An application makes sense while there is still time to wait for the answer, or with the contract made conditional on it.