We previously flagged the lack of a system of advance tax rulings in Flanders and the ensuing legal uncertainty, especially for real estate transactions (Eubelius Spotlights March 2015). The Flemish legislator shares this concern and, in a decree dated 17 July 2015, has now established its own ruling commission. The legal framework applicable to rulings issued by the Flemish Tax Service is to a large extent based on the existing framework for the Federal Ruling Commission. For matters relating exclusively to Flemish taxes, it is already possible to obtain an advance tax ruling. For matters relating to both Federal and Flemish taxes, the date of entry into force still has to be determined.
Background
Since 2003, taxpayers have been able to ask the Federal Ruling Commission how the tax law will be applied to a given situation or transaction. Such a request must be made in advance, which means that the transaction in question may not already have produced effects for tax purposes. The Federal Ruling Commission then delivers an advance tax ruling that is binding for the tax authorities. As such, the ruling system allows a taxpayer to obtain upfront legal certainty as to the tax treatment of an envisaged transaction or investment.
The possibility of obtaining an advance tax ruling is only available for questions relating to the application of tax laws which fall within the powers of the Federal Tax Authorities or for which they undertake collection and recovery. Until 1 January 2015, the collection and recovery of registration and inheritance duties fell within the powers of the Federal Tax Authorities, and hence it was possible to obtain advance tax rulings regarding the application of those (regionalised) taxes. However, following the transfer to the Flemish Tax Service of the responsibility for collection and recovery of these taxes, the Federal Ruling Commission can no longer deliver advance tax rulings in this respect. The Flemish legislator was aware of this issue but specifically decided not to establish its own ruling commission.
In order to provide a certain degree of legal certainty, the Flemish Tax Service offered the possibility of requesting an "explanatory decision". Not only did these explanatory decisions not have the same binding legal value as a (federal) advance tax ruling, it was also not possible to obtain such a decision for mixed matters relating partly to Flemish taxes and partly to federal taxes. An example of a mixed matter is the split-sale structure which was discussed earlier (Eubelius Spotlights March 2015). Other examples are the mixed contribution of real estate into the share capital of a Belgian company or, in the case of a transfer of real estate, whether the transfer is subject to VAT or registration duties.
Flemish ruling commission
An initial evaluation showed that this system of explanatory decisions was not leading to satisfactory results. Therefore, with its decree of 17 July 2015, the Flemish legislator has now decided to establish its own ruling commission, which forms part of the Flemish Tax Service. The legal framework within which rulings will be delivered by the Flemish Tax Service is to a large extent a copy of the framework that governs federal ruling practice. In Flanders, too, a tax ruling may only be obtained for situations or transactions which have not yet produced effects for tax purposes, and such rulings will be binding upon the Flemish Tax Service.
The Flemish legislator also makes a distinction between matters which are exclusively Flemish and the mixed matters mentioned above.
A matter is exclusively Flemish if the request only relates to situations or transactions which fall within the exclusive powers of the Flemish Tax Service. For such cases, it has been possible to file a ruling request with the Flemish Tax Service since 14 August 2015.
This possibility does not yet exist for mixed matters, i.e. matters for which the Flemish Tax Service and the Federal Ruling Commission both have competence. For such mixed matters, it will be possible to file a ruling request with both the Federal Ruling Commission and the Flemish Tax Service. The latter will then issue a binding advice to the Federal Ruling Commission regarding the application of the Flemish Tax Code. Both parts – the part relating to federal taxes and the part relating to Flemish taxes – should then be integrated into one decision, which will be communicated to the taxpayer.
As mixed matters require close cooperation between the Flemish Tax Service and the Federal Ruling Commission, a protocol agreement between the two levels is currently being prepared. Once this protocol agreement has been finalised, the Flemish government will announce the date as from which it will be possible to obtain an advance tax ruling on mixed matters as well.
The decision of the Flemish legislator to establish its own ruling commission will provide taxpayers with legal certainty, especially when carrying out transactions relating to real estate situated in Flanders, and is therefore to be welcomed.