Advance tax rulings and pre-ruling – a mechanism for ensuring legal certainty in taxation

Over the past few years, the institution of “ Pre Ruling “ or preliminary tax decisions has been increasingly used as a tool that allows taxpayers – both individuals and corporations – to avoid uncertainty in the taxation of future transactions or economic activities. This tool, which is part of the services provided by the Tax Authority, allows the applicant to receive clear and unambiguous answers regarding the tax implications of certain actions, before carrying them out, thereby reducing the risk of unexpected tax exposures.

Definition of pre-ruling and the legal authority to issue advance tax rulings

Pre-Running is a procedure in which a taxpayer submits a request to the Tax Authority to receive an answer regarding a taxation question that does not have a clear answer in the tax laws or existing tax circulars. This process provides the taxpayer with complete certainty regarding the tax implications of an action or transaction he is considering, thus allowing him to plan his steps in an informed manner and make optimal strategic decisions.

The authority to issue advance tax rulings stems from the legal institutions of sections 158B to 158F in Part IX of the Income Tax Ordinance , which grant the Director of the Tax Authority the right to issue tax rulings on various issues related to future transactions. These sections stipulate that the Director of the Tax Authority can provide an official response to the applicant, which will have legal validity, but may not always be publicly published.

Benefits of using a rolling cow

1. Tax certainty : The main advantage of the pre-routing procedure is the ability to receive a definitive answer to ambiguous tax issues. In cases where the provisions of the law are unclear or a specific interpretation is required, this procedure allows the taxpayer to know in advance the amount of taxation expected in a transaction or action, which can save him unnecessary expenses and even return to the negotiating table if it becomes clear that the potential taxation may make the transaction unprofitable.
2. Effective tax planning : Through pre-rolling , corporations, international companies, and individuals can plan their business steps in the most efficient way from a tax perspective. Large entities that need to make strategic decisions about future moves can rely on a preliminary tax ruling to know for sure the financial implications of these moves.
3. Cost and time savings : This procedure reduces the risk of additional expenses by maintaining transparency with tax authorities. This allows you to avoid exposure to additional expenses such as interest and linkage that can arise in a regular appraisal process. In addition, since the tax decisions are preliminary, the applicant has the opportunity to understand the expected level of taxation and influence the feasibility of the transaction or action.
4. Transparency with the Tax Authority : The pre-routing procedure conducts the transaction in an open and transparent manner with the Tax Authority, which reduces the risk of unnecessary audits or future tax investigations, and allows the taxpayer to carry out his transactions or actions in an orderly manner and with complete knowledge of the tax implications.
   The procedure for submitting an application for a preliminary tax ruling
   The procedure for submitting an application for a preliminary tax ruling requires the applicant to provide all relevant documents, including details of the transaction or action he wishes to perform, which have tax implications. The Tax Authority must, after receiving the application, give the applicant the opportunity to present his arguments and provide additional information if necessary. After receiving the decision, if it was given in an agreement, it cannot be appealed. However, if it is not an agreement, the applicant may appeal the decision within the framework of an appeal against the assessment. In any case, the Tax Authority is obliged to act according to the decision, unless it is discovered that false or incorrect details were presented to it.The legal status of an advance tax ruling
   The preliminary decision does not constitute a contract between the parties, but it has legal validity and obliges the Tax Authority to carry out the actions in accordance with it. On the other hand, if the taxpayer chooses to act contrary to the tax ruling, he is obligated to explain this change within his financial statements.Summary
   The pre-routing procedure is an important and useful tool for taxpayers who wish to avoid uncertainty regarding the tax liability implications of their actions. The use of advance tax rulings helps taxpayers – whether they are small, medium-sized businesses or large corporations – make informed decisions, reduce financial risks and manage tax liabilities optimally. Additionally, these decisions help maintain transparency with tax authorities and avoid financial surprises in the future.

   
   Ish-Shalom & Co. specializes in representing taxpayers before the professional departments of the Tax Authority, providing professional advice and representation in the field of taxes, including assistance in submitting requests for preliminary tax rulings while maintaining privacy and providing personalized advice, to ensure the best result for clients. We will be happy to assist you in these procedures and other areas related to taxes and representation with the Tax Authority.

   If you have any additional questions or need help dealing with the pre-rolling process, I’m here to help!