Some individuals in Sweden may be familiar with the option to apply for advance tax rulings, a process that provides a binding decision on the tax treatment of a specific matter. Advance tax rulings can be useful when individuals or companies seek clarity on the tax implications of a future event, such as a planned relocation or transaction. Learn more about it in this article.
What is an Advance Tax Ruling?
The opportunity to apply for advance tax rulings has been a longstanding feature in Swedish legislation. This process, established in 1951 by the Riksskattenämnden, allows for binding decisions on tax matters. Today, the procedure is governed by the Advance Tax Ruling Act (1998:189), administered by an independent authority named the Skatterättsnämnden (Tax Law Council). This body is responsible for handling advance tax ruling cases and rendering decisions on the tax treatment in question.
Skatterättsnämnden, consisting of legal experts, essentially functions as a mini-court. In the process, the Swedish Tax Agency (Skatteverket) takes on the role of the opposing party against the applicant seeking the advance tax ruling.
Who can Apply for an Advance Tax Ruling?
Anyone can apply for an advance tax ruling. Common subjects for rulings include issues related to "substantial affiliation" and "habitual abode", concerning the duration of an individual's stay outside Sweden and the ties that a emigrated person can keep with Sweden without becoming subject to unlimited tax liability. Questions regarding the 3:12 rules for companies are also prevalent.
When companies apply, the issues may involve deductibility, the Swedish participation exemption regime, interest deduction limitation rules, and withdrawal taxation.
When should you apply for an Advance Tax Ruling?
Given that tax law addresses how the state can levy taxes on individuals or companies, the outcome of a tax issue can often be financially significant. Tax law is a complex field of law that continually evolves with new legislation and court rulings. It's not uncommon for certain legal questions in tax law to be legally uncertain.
To address this legal uncertainty, which could potentially result in substantial payments to the state, the option to apply for an advance tax ruling exists in Sweden.
Advance tax rulings are generally binding, meaning that the Swedish Tax Agency is obligated to follow the ruling. For example, if an individual is uncertain about their tax liability after moving to Italy, they can apply for an advance tax ruling before the move to clarify their tax treatment.
What Are the Requirements for Obtaining an Advance Tax Ruling?
Several formal requirements must be met for the Tax Law Council to issue an advance tax ruling. One of the key requirements is that the application must revolve around a future choice for the taxpayer. In our previous example, the future choice could be whether the individual will move to Italy, dependent on the answer to the tax question. Applications cannot be based on events or choices that have already occurred.
Applying for an advance tax ruling necessitates the involvement of a skilled tax lawyer who prepares the application and represents the applicant during the Tax Law Council's process. Unfortunately, an increasing number of advance tax rulings have been rejected due to the restrictive stance taken by the Supreme Administrative Court concerning the criteria for issuing such rulings.
What Are the Advantages of an Advance Tax Ruling?
The benefit of an advance tax ruling is that individuals or companies can use it as a decision-making basis for an upcoming choice. It can also help determine if a planned structure will work from a tax perspective.
An essential advantage of advance tax rulings sought to clarify an unclear legal situation is that they can be appealed directly to the Swedish Supreme Administrative Court without the need for special permission. This is an uncommon feature in Swedish procedural law, and it means that the court annually decides on a significant number of advance tax rulings, essentially leading to the verdicts being equivalent to Swedish law, given the high precedent value of the court's decisions.
How to Apply for a Swedish Advance Tax Ruling?
The initial step in applying for an advance tax ruling is to consult with a tax lawyer to assess whether an application is even possible. As mentioned earlier, the legal rules surrounding advance tax rulings are intricate and, to some extent, unclear.
If it is determined that a application can be made, the tax lawyer prepares the application, which is then submitted to the Tax Law Council. The process officially begins after the application fee has been paid. Subsequently, the Swedish Tax Agency has the opportunity to respond to the application. After both parties (applicant and Swedish Tax Agency) have presented their arguments, the Tax Law Council issues a decision on the matter. If either party is dissatisfied, they can appeal to the Swedish Supreme Administrative Court.
Are you considering an application for an advance tax ruling? At nomadtax, we have successfully represented numerous clients in advance tax ruling cases before the Tax Law Council and the Supreme Administrative Court. Contact us for an initial discussion.
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