From the analysis of advance tax rulings systems conducted throughout this article it would seem highly beneficial to have a harmonized advance tax rulings within the European Union. Whether or not this would be possible is something that we try to discover.harmonization, tax rulings, analysis

Alia DUTA

English

Research Papers in Economics

Year VIII, No.9/2009                                                                                                   247             
 
THE HARMONIZATION OF ADVANCE TAX RULINGS 
SYSTEMS IN EUROPEAN UNION MEMBER STATES – 
WHY? 
 
Lect. Alia DUŢĂ, PhD 
University of Craiova 
1. Introduction 
 
The need for an efficient flow of 
information between tax administrations 
and taxpayers has often been considered 
of fundamental importance in order to 
solve the (sometimes) problematic 
application and interpretation of tax law 
provisions. 
The difficulties related to the 
application and interpretation of tax law 
provisions are enhanced in cross-border 
situations. It is obvious that taxpayers 
making investments or having business 
activities in a country different from that 
where they are resident shall encounter 
the difficulties related to the compliance 
with the foreign tax system, with 
language barriers and legal concept 
which they are not familiar with. The 
compliance with complex tax provisions 
belonging to foreign legal systems is 
rendered more difficult due to the 
interaction of several rules originating 
from “different legal orders” such as 
double taxation conventions. These 
difficulties are enhanced within the 
European Union, where also the impact 
of European law must necessarily be 
ascertained. 
An advance tax rulings system has 
been considered in the literature “…an 
indispensable tool in the modern world of 
tax administration”. It is undeniable that 
tax rulings have several advantages both 
from the perspective of the taxpayers and 
of the tax authorities. Notwithstanding 
these advantages enhancing the 
functioning of the tax system, the 
different set of rules governing the 
various advance tax rulings systems in 
each Member State may also constitute 
an obstacle for the development of cross-
border investments in light of the 
common market. For this reason, it is 
appropriate to eliminate any doubt about 
the opportunity of implementing a well 
structured advance tax rulings system 
within a national jurisdiction.   
 
2. Why harmonize advance tax rulings 
systems? 
 
  To reach a higher certainty 
of law 
 
Tax law is often obscure. The 
causes of the opacity of tax provisions 
are several, namely: 
-  the massive legislative 
production of tax rules, with many 
provisions often being spread across 
several laws, including those not related 
to taxation; 
-  continuous legislative changes, 
which are often dependent upon a 
government’s coalition partners’ pursuing 
different tax policies; 
-  an inherent interdisciplinary 
character of tax law, which often refers to 
other fields of law like constitutional, 
administrative and commercial law. It 
could be argued that this uncertainty 
about the interpretation and application of 
tax law is inherent because it depends 
upon transactions (acts or facts) 
regulated by other fields of law. In other 
words, the interdisciplinary character of 
tax law is stronger than in many other 
areas of law and may be considered one 
of the causes of uncertainty; 
-  budgetary reasons that force 
the adoption of ad hoc rules not always 
well reasoned and well planed. 
Next to the obscurity of the tax 
systems as such, there are the various 248                                                                       Finance – Challenges of the Future                       
and conflicting interpretations given by 
the tax administrations and the 
(sometimes) divergent judicial decisions 
issued on the same legal provisions. 
Similar remarks could be made for 
European tax law. Although European 
legislation in the tax field is rather limited 
as compared with any single national tax 
system. The process of harmonizing or 
coordinating direct and indirect taxation 
in the Member States has passed 
through amendments to the fundamental 
treaties and through the adoption of 
several directives, regulations and many 
other soft-law instruments. This massive 
legislative production of tax rules, their 
continuous changes, the necessity to 
refer to other fields of law for the 
interdisciplinary character of tax law have 
resulted in the creation of a European tax 
order which is difficult to administer, 
implement and comply with. This is also 
evidenced by the increasing number of 
cases brought to the European Court of 
Justice, which, in some instances with 
conflicting interpretations, have 
contributed to the creation of uncertainty 
in the interpretation and application of 
European tax law. 
 
  To improve the dialogue 
between taxpayers and tax 
administrations 
 
The complexity and consequent 
uncertainty of tax law has increased the 
role and the importance of an efficient 
information system for both taxpayers 
and tax authorities. Most tax 
administrations of EU Member States are 
trying to improve the quality of the 
services rendered to the taxpayers, 
introducing different forms of dialogue 
between tax authorities and taxpayers. 
It is undeniable that advance tax rulings 
play a fundamental role in improving the 
dialogue between taxpayers and tax 
authorities and give rise to a more 
efficient exchange of data between the 
two subjects of the tax system. 
 
  To improve consistency in 
the application of tax law 
  Another fundamental reason for 
establishing an advance tax rulings 
system is to achieve a higher consistency 
in the application of law. Indeed, the 
value of precedent attached to rulings in 
some jurisdictions, together with their 
publication, could offer taxpayers 
significant guidance in structuring their 
business in the most convenient manner 
from a tax point of view. 
 
  To improve the decision-
making process of tax administrations 
 
As a result of the increased 
uniformity in the tax policy and the higher 
consistency in the interpretation and 
application of tax law provisions, another 
important advantage of an advance tax 
rulings system is the improvement in the 
decision-making process by the tax 
authorities. This may become more 
efficient and more transparent. By having 
available a body of law represented by 
the tax rulings previously issued, tax 
authorities may be faster in taking their 
decisions and, generally, more efficient in 
the heavy burden of the administration of 
the tax system. The existing tax rulings 
may represent a point of reference for the 
tax administration to readily solve the 
same or similar questions over the time. 
 
  To reduce litigation to a 
minimum 
 
One of the positive consequences 
of a functional tax rulings system is a 
decrease in tax litigation with the related 
benefits of the decrease of 
overburdening the courts and of 
associated costs. Tax rulings help reduce 
the potential disputes between taxpayers 
and tax authorities and the necessity of 
recourse to the courts. As far as 
favourable rulings are concerned, this 
result may be achieved only when the tax 
administration is obliged to respect the 
tax rulings issued and does not act 
against a taxpayer who is following the 
result of the ruling. In other words, in 
order for a tax rulings system to operate 
as a mechanism for dispute resolutions, it Year VIII, No.9/2009                                                                                                   249             
-  to reduce tax litigation;  is essential to attribute binding effects to 
the rulings at least on the side of the tax 
administration. 
-  to give the tax administrations 
the possibility to gather information from 
taxpayers;   
-  to avoid harmful tax 
competition regimes and practices. 
3. Conclusions 
   
An advance tax rulings system 
should comply with the generally 
prevailing principles of a tax order, like 
principle of legality, of equality and of 
transparency. These legal principles 
represent the minimum legal framework 
within a harmonized advance tax rulings 
procedure must be established in the 
national legal orders of the EU Member 
States.  
From a legal point of view, the 
advantages of a harmonization of 
advance tax rulings systems in the EU 
Member States are the following: 
-  to obtain a higher degree of 
certainty in the interpretation and 
application of tax law provisions; 
-  to have greater consistency 
and uniformity in the application and 
interpretation of the law; 
-  to enhance the transparency of 
the decision-making process of the tax 
authorities 
   
    
 
 
REFERENCES 
M. Ellis  General report, Advanced rulings, cahiers de droit fiscal international, 
vol lxxxivd, 1999    
Carlo Pinto  Tax competition and EU law, Doctoral thesis, University of 
Amsterdam, Faculty of Law 
C. Romano   The international guide to advanced rulings, International Bureau of 
Fiscal Documentation, Amsterdam, 2001 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The harmonization of advance tax rulings systems in European Union member states - Why?

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