Pre-emptive discussions help corporate entities with challenging tax questions
Corporate entities, such as limited liability companies, can ask the Tax Administration for a pre-emptive discussion on challenging tax questions.
In taxation, corporate entity refers to
- limited liability companies
- cooperatives
- state and state institutions
- municipalities and joint municipal authorities
- wellbeing services counties, and joint county authorities for wellbeing services
- investment funds
- financial associations and non-profit associations.
Only questions relating to a corporate entity’s own taxation can be dealt with in a pre-emptive discussion. In other words, individuals' or shareholders' tax assessment cannot be discussed.
The purpose of a pre-emptive discussion is to provide greater predictability as regards taxation and to help corporate entities operate correctly from the point of view of taxation when their business operations change, for example. Another objective is to streamline the processing of tax matters and to improve the transparency of the Tax Administration’s operations. Pre-emptive discussions are not subject to a fee.
When to consider a pre-emptive discussion?
If a corporate entity has a tax question relating to its business operations or changes in the operations and it cannot find an answer in the Tax Administration’s instructions, the corporate entity can ask the Tax Administration for a pre-emptive discussion. A pre-emptive discussion is recommended especially when a business arrangement or transaction is at such a stage that the corporate entity can still take the guidance provided by the Tax Administration into account. The entity requesting a discussion should ask a detailed question about taxation and describe what kind of guidance it seeks. In addition, it should be prepared to give an account of the details affecting the matter.
The Tax Administration assesses on a case-by-case basis whether a pre-emptive discussion is suited for the case and the tax question presented by the corporate entity. Further, the discussion and the guidance provided by the Tax Administration may vary from general to detailed, depending on the content and quality of the account given by the corporate entity.
The Tax Administration may provide guidance on the tax treatment of a business arrangement planned by the corporate entity, for example. In this case, the corporate entity gives the Tax Administration an account of the type of arrangement that is being planned and provides its own estimate of the arrangement's tax impact. Based on an oral and written account given by the corporate entity, the Tax Administration can take a stand on the tax treatment of the arrangement. However, any decisions regarding the implementation of the arrangement are made by the corporate entity itself. If guidance on the tax treatment cannot be provided in a pre-emptive discussion, the Tax Administration can instruct the corporate entity to apply for an advance ruling.
In a pre-emptive discussion, tax treatment of actions already taken can also be discussed provided that no tax return has yet been filed and no tax paid regarding the action in question. A pre-emptive discussion must be requested well in advance of the due date of the tax return so that the corporate entity can make use of the guidance provided when filing the tax return.
Conducting a pre-emptive discussion
At least two specialists of the Tax Administration and at least one representative of the corporate entity participate in the discussion. The corporate entity may also be represented by an authorised agent. The discussion can be held on the corporate entity’s or Tax Administration’s premises or over a remote connection.
See a diagram showing the discussion process (pdf)
During the pre-emptive discussion, the Tax Administration can give the corporate entity oral guidance on how to act correctly, from the tax point of view, in the case and tax question presented. At the end of the discussion, the Tax Administration drafts a written memorandum and may also include the guidance in the memorandum. If more than one discussion has been held on the same tax matter, the Tax Administration can include them all in one memorandum. If a pre-emptive discussion concerns different tax types, the Tax Administration can draft separate, tax-type-specific memoranda on the discussion.
The Tax Administration may give the corporate entity an opportunity to comment on the draft memorandum before delivering the final memorandum. The corporate entity will receive the Tax Administration’s final memorandum in MyTax. If the corporate entity so request, the memorandum will not be sent to MyTax. See below what the memorandum contains.
A memorandum on a pre-emptive discussion contains, for example, the following information:
- A reason or background explaining why the corporate entity has requested a pre-emptive discussion
- The time and place of the discussion, and the names of the participants
- Description of the progress of the discussion
- The account given by the corporate entity on the case and tax matter discussed, and the entity’s own view or interpretation of the tax treatment
- Guidance (if any) provided by the Tax Administration, and any response given by the corporate entity
A pre-emptive discussion on transfer pricing
A corporate entity can also request a pre-emptive discussion on transfer pricing matters. In cross-border situations with certain countries, the Cross-Border Dialogue may be used instead of a pre-emptive discussion. See below for further instructions regarding a pre-emptive discussion on transfer pricing matters.
The purpose of a pre-emptive discussion is to appraise the arm’s length principle in transfer pricing between related parties, and the Tax Administration can provide guidance on the verification of arm’s length pricing.
Before the actual discussion, the corporate entity must specify the transfer pricing matter that it wants to discuss and seek guidance on. In addition, the corporate entity must be prepared to give an account of the related-party transaction that it wants to discuss, appraise its pricing from the arm’s length perspective, and describe any problems it may have detected.
A pre-emptive discussion may be suited for transfer pricing matters such as the following:
- Arm's length pricing of a related-party transaction that is being planned or has been carried out
- Planned updating of a group’s transfer pricing model
- Impact of the rearrangement of business operations planned by the corporate entity on the transfer pricing of related-party transactions (see Transfer pricing in situation involving changes in the business model)
- Transfer of intangible rights within a group, planned by the corporate entity, and its impact on the transfer pricing of transactions between related parties (see Transfer pricing of intangibles)
- Arm’s length pricing applied in financial transactions within the group, or transfer pricing matters related to the arrangement of the group’s financial activities (See Transfer pricing of intra-group financial transactions)
The Tax Administration always considers the suitability of a pre-emptive discussion case by case and appraises its own ability to provide guidance on the transfer pricing matter presented by the corporate entity based on the account given by the said corporate entity. More than one discussion may be held, if necessary, to appraise the transfer pricing matter at hand. Further, the Tax Administration may also ask the corporate entity to provide other written statements or calculations, which may lengthen the total duration of the procedure.
The Tax Administration may not be able to verify the arm’s length pricing of related-party transactions in every pre-emptive discussion based on the account provided by the corporate entity. The Tax Administration may terminate the procedure if it holds that it is no longer appropriate to continue discussing the transfer pricing matter in the pre-emptive discussion. Even in that case, the Tax Administration can include general guidance in the memorandum and thereby help the corporate entity to comply with the arm’s length principle. In some cases, the Tax Administration may also decide not to provide actual guidance even though transfer pricing has been discussed.
The Tax Administration recommends that the corporate entity should assess the terms and conditions and pricing of a related-party transaction from the arm’s length perspective when planning the transaction. It is therefore recommended that a pre-emptive discussion on transfer pricing should be held at the planning stage so that the corporate entity can take any guidance provided by the Tax Administration into account. From the point of view of the Tax Administration, it is also possible to hold a discussion on a transfer pricing matter after the transaction has been carried out. At the very latest, however, the discussion must be held at such a time that any guidance provided can be complied with during the tax year and in the tax return to be filed.
The objective of the Cross-Border Dialogue is the same as that of a pre-emptive discussion: to guide the corporate entity to act correctly from the point of view of taxation. The Cross-Border Dialogue is suited to cross-border situations where the corporate entity seeks guidance on tax matters from the tax authorities of two or more countries. Transfer pricing matters are particularly well suited for the Cross-Border Dialogue.
The interpretation of tax authorities of different countries on the corporate entity’s tax matter is based on the national legislation of the country in question. Whether the guidance provided is binding also depends on the legislation. Written guidance provided by the Finnish tax authority is binding on the tax authority when the conditions under § 26 of the act on the assessment procedure are met. The Cross-Border Dialogue does not replace appealable domestic or international advance rulings or advance pricing agreements. Read more: Advance pricing agreement (APA).
Protection of legitimate expectations in a pre-emptive discussion
If there is established taxation or legal practice that applies to the questions presented by the corporate entity during the discussion, the corporate entity may receive written guidance from the Tax Administration after the discussion. That guidance is binding on the Tax Administration if the conditions laid down in the act on the assessment procedure are met (§ 26 of the act on the assessment procedure (Laki verotusmenettelystä 1558/1995) or § 6 of the act on the assessment procedure for self-assessed taxes (Laki oma-aloitteisten verojen verotusmenettelystä 768/2016)).
In some tax matters, the guidance provided by the Tax Administration during a pre-emptive discussion may be comparable to guidance provided during a tax audit or control visit, for example. The guidance provided by the Tax Administration is always based on the account given by the corporate entity during the discussion.
If there is no established taxation or legal practice regarding the questions presented by the corporate entity during the discussion or if the parties disagree on the tax impact, the Tax Administration can instruct the corporate entity to request an appealable advance ruling, for example. Advance rulings are subject to a fee. Read more about requesting an advance ruling.
How to request a pre-emptive discussion
Pre-emptive discussions are meant for discussing challenging tax questions to which corporate entities cannot find answers in the Tax Administration's instructions. In other matters, please study the instructions on vero.fi and call our service numbers if needed.
Corporate entities can request a pre-emptive discussion in MyTax. After logging in to MyTax, select Report or request information in a limited scope. When an agent requests a pre-emptive discussion for a corporate entity in MyTax, the information will not be linked to their personal tax information.
Submit a request for a pre-emptive discussion
If the corporate entity provides sufficient background information on the matter and question when submitting their request for a pre-emptive discussion, the Tax Administration will be able to process the request more quickly. The Tax Administration assesses on a case-by-case basis whether a pre-emptive discussion is suited for discussing the question presented by the corporate entity.
If the pre-emptive discussion concerns an insider matter, the corporate entity should contact the Tax Administration by phone or send the request with any background material to the address: Tax Administration, P.O. Box 10, 00052 VERO.