Pre-ruling is a confirmation or decision of the tax authorities regarding taxpayer’s application concerning tax consequences as a result of transactions or actions of the taxpayer. Amendment 147 to the Income Tax Ordinance, 2005, regulates the taxation decision (pre-ruling), while the taxation decision is aimed to facilitate the work of the tax authority, reduce the amount of required discussions with tax assessor and to assist in removing the uncertainty factor throughout various transactions in Israel. It should be noted that taxation decision is general and concise and the preliminary decision has a limited legal status, however, preliminary decision is very significant for the taxpayers and allows obtaining decisions regarding various operations, such as a decision related to a certain real estate transaction.
Pre-ruling procedure has many advantages, especially since the provisions of the tax authorities apply to everyone, while the preliminary decision is intended to provide an opinion to a specific taxpayer. The pre-ruling procedure allows companies and organization in the business sector to makes tax decisions. Preliminary decision is very significant to the business sector, since it allows to demystify certain activities and transactions, which can prevent conflicts and misunderstandings and therefore, eliminate the need for conducting discussions with the tax assessor. For example, a person interested in carrying out a land transaction, can examine various methods to make a decision regarding the most suitable alternative from a tax payment perspective, which may lead to a lower tax rate.
Standard procedure among the Israeli government authorities
It should be noted that the pre-ruling procedure is used by several government authorities, including the Tax Authority, Securities Authorities, Antitrust Commissioner and other authorities. Since the government authorities are required to be transparent, they should publish the preliminary decisions, while personal details and identity of the person, who submitted the application, do not appear in the decision to maintain privacy and prevent exposure of data that may harm the business. By the way, after making a preliminary decision, the authority cannot change it, unless the data presented was found as incorrect or misleading, as well as in case the authority did not receive all the documents required in order to make a binding and correct decision. For example, two corporations can check in advance whether their coordinated positions violate the law and they might receive an objection from the Antitrust Commissioner.
It is important to know that a preliminary decision does not bind the court, since the courts are authorized to interpret the law, although the preliminary decision obligates the government authority in a specific case of a person, who has submitted the application. Since the decision of the government authority is often made after the fact, the result might cause financial damage to the person. For example, if a person has established a business in a property he acquired for this purpose, and the authorities decide not to allow him to work in the area.
Legal counseling and representation
Ronen Oren & Co. Law Office is engaged in the field of pre-ruling in Israel and obtains preliminary decisions in the field of taxation and in other fields. The firm offers consulting services to Israelis and foreign residents, who seek to invest in Israel and require pre-ruling regarding tax consequences related to their investment or to another matter, including investment in startups.