Ruling description

The Minister of Finance in the General Tax Ruling of 29 December 2015 clarified the rules of application of Art. 2a of the Tax Ordinance which sets forth that any doubts as to the content of tax regulations must be resolved in favour of a taxpayer. The provision which came into force on 1 January 2016 raised doubts as to the scope of its application and powers of tax authorities stemming from it even before its adoption. Pursuant to Art. 2a of the Tax Ordinance any doubts as to the content of tax regulations that cannot be removed shall be resolved in favour of a taxpayer.

1. General

According to the Minister of Finance, the said rule shall only be applicable to doubts concerning the content of legal regulations. It does not however mean that an opposite rule shall be applicable to doubts as to the fact findings. Moreover, a direct addressee of a norm arising from the provisions of Art. 2a of the Tax Ordinance is a tax authority resolving a tax case. On the other hand, a taxpayer may draw a tax authority's attention to the necessity to apply the said regulation, and an unjustified refusal will serve as grounds for a procedural charge.

The rule of resolving in favour of a taxpayer shall also be applicable to cases concerning remitters, cashiers, legal successors of a taxpayer and third parties responsible for someone else's tax liabilities.

2. Fundamental rules of application of Art. 2a of the Tax Ordinance.

a. The said rule shall first of all be applicable in tax proceedings, but also in any cases in which the tax authorities apply legal regulations in an authoritative manner (e.g. the issuance of tax rulings). When interpreting legal regulations, a tax authority should take into consideration judicial decisions of the Court of Justice of the European Union.

b. To refuse to apply Art. 2a of the Tax Ordinance, a tax authority must prove that the content of a regulation does not raise any doubts in the case or – if a regulation actually raises doubts – it must prove that these doubts may be removed and the result of a correct interpretation of the regulation is different than specified by a taxpayer. Such a situation may occur as a result of reliance on regulations inadequate to the state of affairs, adoption of wrong interpretative assumptions, wrong reasoning, or if a taxpayer's argumentation is so weak compared to the opposite argumentation that it is hardly possible to assume that the doubts cannot be removed.

In such an event a statement of grounds for the refusal to apply Art. 2a of the Tax Ordinance will be a mandatory element of a decision or other resolution. When examining the legitimacy of the tax authorities' actions, an administrative court will be allowed to reverse a decision e.g. in a situation where a tax authority did not apply Art. 2a of the Tax Ordinance despite the existence of sufficient statutory prerequisites.

c. If a tax authority comes to the conclusion that there is more than one interpretation of a regulation that is equivalent and favourable for a taxpayer, it should choose the one which is more favourable for the taxpayer. An interpretation "favourable for a taxpayer" means a legal solution which is the best for the taxpayer from amongst all solutions considered when interpreting the regulation.

Therefore, the application of Art. 2a of the Tax Ordinance will require determination of a "taxpayer's interest" in light of a given case. A more "favourable" solution may also be indicated by a taxpayer in a calculation contained in a tax return or presented during tax proceedings. In such a case, if an authority cannot resolve which interpretation is more favourable for a taxpayer (e.g. both interpretations are favourable for a taxpayer, but - in other fields of operation of tax law – choosing one of them will lead to the loss of benefits arising from the other), it should establish the taxpayer's position as to the selection of the most favourable interpretation.

Comment

The issuance of a general tax ruling of the Minister of Finance deserves a warm welcome, even before its entry into force. It extensively clarifies the correct understanding and rules of application of the said rule by tax authorities. However, the issuance of the tax ruling does not resolve doubts as to whether the rule will be properly applied in practice, as the application of an interpretation favourable to a taxpayer will lead to measurable tax benefits. Therefore, when applying this rule ex officio, the tax authorities will have to refrain from a pro-fiscal adjudication and assuming that a possible dispute will be settled by a court. Therefore, we shall attentively watch the direction the adjudication practice of tax authorities' takes when the regulation comes into force.

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