As most legal rules, the absolute majority of tax rules take aim at circumstances in the outer world, for example, transactions, financial positions, causalities, intentions, values or the probability of a loss. This aim may concern conditions at a certain point in time (for example, the value of a car at 2018-05-28) or over a period of time (for example, the nature of someone’s services during a year in relation to a company in which he or she is a shareholder).
These circumstances have a history and a future, which may be of relevance for the assessment of the event or relationship to which the legal rules relate. However, it is usually insignificant if, for example, an asset’s value was higher or lower before this decisive point in time. The rules, as mentioned, aim at the conditions at a certain time or period, hereinafter referred to as
The circumstances at the decisive moment are decisive for the tax assessment of business events, and so on,when the declaration is to be established – basically, regardless of when the tax is assessed (which, for example, can take place long after a transaction). This moment is also of fundamental importance for evidential purposes, as evidence is supposed to shed light on the conditions at this particular moment. The evaluation of evidence is free, but should refer to the circumstances at the decisive moment. As we will explore below, this moment may differ, but often it is the transaction date or the last day of the tax year.
In most cases, it is easy, or even trivial, to determine where the decisive moment lies. However, this is not always the case. Tax rules may also require that the conditions on several times are investigated, even for a single transaction or valuation. So, for example, is the case of the Norwegian Norwegian Tax Act §§ 10-2 flg. Lag om koncernbidrag. Norwegian Tax Act § 2-38 (6) letter c). Norwegian Tax Act § 10-62.
Furthermore, it may be difficult to determine what significance is to be given to events after the decisive moment. Even though tax rules, implicitly or explicitly, focus on the circumstances at a certain time or period, it may still be of importance what happens after this. We will not go into accounting rules and issues in this paper, even though they can be of importance for income tax purposes. Some of the cases that we highlight here concern such issues though, but we then only discuss the decisive moment with regard to taxation, not accounting law in itself. It is, however, worth mentioning that it is very interesting to compare the phenomenon events after the reporting period (see, for example, International Accounting Standards IAS 10 (Events after the Reporting Period), within accounting law, with its income tax parallel. See Kellgren, Tidsfrågor i skatterättstillämpningen: Om de avgörande tidpunkterna i redovisning och beskattning och om betydelsen av händelser därefter, Jure 2016, 144 pages and “IAS 10 Events after the Reporting Period Problematized – Some Questions Regarding the Standard’s (Read by its Letter) Understandability”, Skattenytt Academic Issue 2018 p. 3–35. Se Kellgren 2016 (supra footnote 5).
The questions of the location of the decisive moment and of the way in which events after this date are to be considered are fundamental in a tax system. At the same time, they seem to be quite overlooked, or at least under-researched, in all our three countries – both in legislation and in preliminary work, case-law and doctrine. Timing issues within taxation are in no way new, but the actual decisive moment has, in our view, not been given enough attention and needs a structured analysis. It is fundamental not to mix the question of the decisive moment for each rule with the actual rules or principles for timing, as cash basis, date of sales and accrual rules. These questions are connected but concern different issues.
The purpose of this article is to properly present the questions of the location of the decisive moment and of the way in which events after this date are to be considered; their logic and significance, more closely, and to give a comparative overview of the legal situation and discourse in this regard, in our respective countries.
In many cases, the question of where the decisive moment lies has a more or less obvious answer. Sometimes, however, difficulties arise. Further, in some cases, the obvious answer
An interesting Swedish case (from the Supreme Administrative Court) that illustrates part of these complexities is the Swedish RÅ 2000 ref. 64, ‘Skåne-Gripen-case’, which included the so-called anticipated dividends (
One of the questions in the case was whether the dividend would be tax-exempt. In order to answer that question, it was necessary to determine what tax year the dividend was to be attributed to – that is, where the decisive moment was situated. The court found that, as the allocation of dividends was consistent with the company law, it could not be contrary to the generally accepted accounting principles. Therefore, it would also be accepted as taxable, which resulted in the right fiscal year being 1986.
Thereafter, the question was whether the assessment of the dividend’s tax exemption was to be made on the basis of the conditions applicable for the tax year established recently or whether the rules regarding the qualification of the dividend as tax-exempt could be considered to regulate the accrual of the assessment. The letter of the law clearly did not regulate this explicitly. The court stated that ‘In principle, unless otherwise regulated, the question of whether tax liability for an income is present or if deductions may be made for a tax shall be assessed on the basis of the circumstances prevailing in the tax year.’ Hence, the tax liability for the ancillary dividend would be assessed in view of the circumstances in the year in which the dividend had been declared, not in the light of the circumstances in which it was decided by the annual meeting of shareholders.
A somehow similar situation may be illustrated by a decision from the Norwegian Supreme Court from 2009 (Rt. 2009 p. 1208). The question for the Norwegian Supreme Court was
On 26 March, a participation exemption system was implemented in the Norwegian Tax Act. Norwegian Tax Act § 2-38.
The Supreme Court concluded that the potential gain from the alienation of the shares was
The problem of determining the decisive moment has been formulated well (from a Swedish perspective) by Bull & Sterzel. In connection with the discussion of the Swedish prohibition of retroactive taxation (retroactivity is not in focus in this article, but this discourse can shed light on the location of the decisive moment), Bull & Sterzel say that the decisive factor for the applicability of the provision is the question of when a tax or tax liability occurs. They also claim this is usually harder to determine than in penal law. They further note that tax liability can rely on a number of factors, such as when an agreement was made, when payment occurred or when a registration was taken or due to a combination of several such factors, and that the answers may look different in different areas of taxation. Bull & Sterzel, Regeringsformen –en kommentar, Studentlitteratur 2015 s. 78.
With regard to Norway, the principle of prohibition of retroactive taxation is given a restrictive interpretation when it comes to taxation. It is, however, important to notice that the income tax is calculated on a net income through an income period. In most situations, the income period is the calendar year. Thus, the question arises whether changes in tax legislation during an income period may be given effect for the whole period, or just for the remaining time of the income period.According to Prof. emeritus Frederik Zimmer, the new/amended tax rules may be applied on the net income from the present year. In Norwegian: «Inntektsskatten blir sett på som en skatt som utskrives på årets nettoinntekt, ikke på den enkelte inntektsskapende begivenhet. Og årets nettoinntekt kan ikke fastslås før ved årets utløp. [Skatte] Regelene antas derfor å kunne endres i løpet av inntektsåret, også med virkning for tidligere inntektsskapende begivenheter, uten at det anses som tilbakevirkende i strid med Grl. § 97 [som stadfester prinsippet om forbudet mot retroaktiv lovgivning].» Zimmer, Frederik. Lærebok i Skatterett, 2018, p. 35.
However, in the situations where the change in legislation is to the taxpayer’s disadvantage, the new/amended legislation is normally only given effect from the time when the legislation is adopted (and not for the whole fiscal year). In the authors’ view, the way of applying changes in tax legislation in Norway, and in some situation give new/amended rules retroactively, does not change the main principle about the decisive moment.
We lack statistical information, but it can be clearly said, regarding all our countries, that the question of the decisive moment is rarely directly regulated in the law or even commented on in the legislative process. In case of law, it is only commented on rarely. The doctrine is also brief on these questions, in all our countries (the question must
There is some case law in Sweden and Norway regarding the retroactivity of tax laws. These decisions, however, primarily concern rather trivial interpretations in terms of where the decisive moment lies, according to the tax rules in question. Said case law has hardly touched upon the decisive moment in, for example, different more complex corporate taxation issues. Further, as far as we have been able to find, the question in these cases has only concerned the decisive moment of the right to tax an income,which is just one of the many questions for which it is relevant to determine a decisive moment. Otherwise, the questions about the decisive moment of income taxation are thus sparsely highlighted (but, nota bene, always principally fundamental, albeit most often not hard) in case law. However, the issue has been highlighted recently with Kellgren’s book ‘Time Issues in Tax Law Application’, from 2016. Kellgren 2016 (supra footnote 5).
In Norwegian literature, the term ‘innvinning’, which is the Norwegian translation of the ‘decisive moment’,was introduced by Magnus Aarbakke in his book ‘Skatt på Inntekt’ from 1968. Although the term was introduced by Aarbakke in 1968, the concept existed long before that. Although it is more than 50 years since the Aarbakke introduced the term ‘innvinning’ and the concept is one of the most fundamental principles in tax law, the decisive moment as a concept is only modestly discussed in Norway. The most comprehensive discussion in Norway is an article from 2013 by Anders Nordli. Anders Nordli. Det skatterettslige innvinningsbegrep – grunnleggende betraktninger, Ole Gjems-Onstad m.fl. Norsk bedriftsskatterett, 2018 p. 88, Frederik Zimmer. Lærebok i Skatterett, 2018 p. 131 et seq. og Arthur J. Brudvik. Skatterett for næringsdrivende, 2017 s. 232 flg
In the authors’ view, the reason why the concept of the ‘decisive moment’ is only modestly analyzed in Norway is the fact that in most cases, the question of the decisive moment does not create a separate problem.
In many cases, the decisive moment and accrual of the income are congruent. It is, however, important to be aware that these are two different concepts, and in some situations, it is of great importance to distinguish between them. The Norwegian Supreme Court decision from 2009 (Rt. 2009 p. 1208, as mentioned above) illustrates this.
In the case of Finland, it should generally be noted that there is a lack of in-depth analysis regarding any problems on the decisive moment of taxation. The issues of taxability and deductibility have been analyzed most in the tax literature. There are some general legal provisions and instructions regarding the timing of taxation in the Finnish tax acts and the tax authorities’ instructions, which are nowadays reflecting the practical interpretation of tax law. A current detailed tax guidance document regarding accrual issues within personal taxation states the following (our translation):
‘An established procedure for the accrual of income and expenses, as well as the main exceptions from this, have been entered in the IV department of the income tax act. The rules are not exhaustive, and therefore, the decisions in previous legal practices and taxation practices still have an impact on a decision concerning an individual accrual problem.’ ‘Verohallinnon ohje’, 4.3.2016, Diary No. A40 / 200/2014.
But what does an established procedure in the law mean? There are some special paragraphs regarding these issues, but otherwise, accrual is governed by the two following sections (ISL 110 §, 113 §, our translations):
An income is considered to refer to the tax year during which it has been lifted or recorded on the taxpayer’s account or under which the taxpayer may otherwise have disposed of it. Profit on transfers is considered income for the tax year during which the purchase, exchange or other transfer was made. (110 §)
Such deductions from the income of the taxpayer that are based on the taxpayer’s expenses shall, if there are no special reasons for another principle, be made for the tax year during which the payment was carried out. (113 §)
The Finnish Business Income Tax Act (BITA) is based on the performance principle and includes several more detailed rules regarding business income.
In the Finnish tax literature, the problem of the decisive moment is usually discussed either under the heading of accrual problems (capital gain realization problems) or ‘which is the correct tax year’. There are, of course, some clear rules in accounting law that are utilized within taxation, and some rules in the tax act. The basic terminology here includes the performance principle (taxation linked to the transfer date) and the cash principle (taxation linked to payment). There are different case laws that mostly concern profit distributions as well as transfer of income (tax revenue) or late accrual of certain realized or unrealized expenses. However, no general clear and explicit principle for the decisive moment is to be found.
In none of our three countries is there a general rule that clarifies the decisive moment or period or on what principles the courts are to use when interpreting tax laws regarding this question. Nor would it be easy to formulate such a rule, inter alia, because it looks different in different cases. Thus, in legal practice, if the decisive moment has not been expressed in the very tax rule, which one is about to apply, it must instead be determined by interpretation, in principle by the respective individual rule. Typically, however, the decisive moment seems to be one of the six reported below. Here, we give examples of each sort of decisive moment, but the reasoning on these examples is developed later in this chapter (Section 2.6 et sec).
Events
Many rules take aim at the situation when
For example, if any condition in the letter of purchase binds a possible increase in the purchase price to any uncertain circumstance in the future, the increase in case of the sale of company shares (HFD-1992 B 523 The abbreviation in Finnish is KHO.
Swedish Income Tax Act Ch. 57.
Norwegian Tax Act § 10-4. Norwegian Tax Act § 2-38 (6) letter c)).
See also Section 3.6 (Subsequent Verification).
A rule can also relate to conditions at several different times or periods. In that case, one can say that the decisive moment has a
Thus, it is important to find clarity regarding the
Thus, the decisive moment in the individual case does not automatically follow from the general principle regarding the decisive moment that is established by (the interpretation of) each tax rule. Thus, basically, This methodology is, for example, well shown in Krzymowska A, Skattepliktiga överlåtelser i inkomstslaget kapital, Jure, 2018. Here, firstly, the principle for the general decisive moment for certain capital gains is presented, and then, secondly, the decisive moment in more concrete, individual cases is analyzed.
Sometimes, the principle for the decisive moment follows, more or less directly, from the very letter of the respective tax rule, or from its close context. An example of this is the Swedish inventory valuation, where 18 Ch. 13 § 2 paragraph 2 SITA clearly speaks of ‘inventories acquired during the tax year and which, at the end of this period, still belong to business activities. By this rule, it is made clear that the application is based on the conditions at the balance sheet date. A similar Swedish example where the decisive moment is clearly stated is the 3 § of Ch. 17 SITA, according to which the inventory’s acquisition value is determined, ‘shall the inventory assets remaining in the stock at the end of the tax year be considered as / ... /’. Thus, the valuation of companies’ inventory stocks is carried out according to the circumstances at a certain time, namely the last day of the tax year.
In these cases, the question of the principle for locating the decisive moment is made clear,which, thus, makes this question simple. Note, however, that a clear general rule may still need to be interpreted in relation to the individual case, and in practice, the application of the depreciation rules are not always simple. Also note that such explicit rules may be of importance in the context of interpreting other tax rules, in order to find their decisive moment. Often, though, as in many other cases of tax law interpretation, it is not self-evident whether a rule stating something (for example, explicitly expressing its decisive moment) is to be seen as indicative of a wider general principle (being based on, and expressing, this very principle) or if it is to be seen as an exception (deviating) from a general principle!
When, as in the cases discussed above (2.4), it is clearly expressed where the decisive moment of the current rule lies, there is no need, nor room, for considering other decisive moments (except
Where the decisive moment is best placed might (both
On the one hand, there is much to be said for choosing a decisive moment that provides the highest degree of Fuller, The Morality of Law, 1969 s. 60.
In some cases, however, it may be considered to be sufficient that
Certain holdings, and so on, are also of such a long-lasting character that, in many cases, full predictability regarding every aspect of the business’s income tax effects already at the first transaction (let us say when buying the asset) would lead to highly inexact taxation, compared to the actual economic situation over time in the company. Having decisive moments ‘along the way’ (the judgments are distributed over time, for example, at the end of each year) or simply taxing ex post (for example, when an asset is finally sold or eliminated), simply makes more sense in some cases.
Predictability is highly desirable not only before a business decision but also when finishing the income declaration. This happens after both the transaction date and the last day of the tax year, though. Obviously, at this time, it is no longer possible for the taxpayer to act proactively, as the business decisions have already been taken. Therefore, this form of predictability has only a weak relation to the issue of the decisive moment and is not further discussed.
The proper placement of the decisive moment can also depend on
It is also of relevance to take into account the specific purpose of each tax rule when it is to be determined where its decisive moment is. Some rules may work best (so that their purposes are realized) when interpreted so that the decisive moment is the balance sheet date, while other rules have a relevant effect if their decisive moment is the transaction date. It should be noted that the decisive moment (thus, in the light of the purposes of the rule chosen), in its turn, will contribute to forming part of this very purpose of the rule – there is a partially circular relationship here.
Tax rules can also relate to conditions over a period of time. That is the case, for example, in all our countries regarding the questions of whether an activity is to be classified as a business activity and, in international taxation, whether a person is fully taxable and whether a permanent establishment exists. Such classifications are, of course, often needed in order to correctly treat different transactions, and so on, which are of a momentary nature (
One example that may illustrate this is the principle of worldwide taxation. To be liable for a worldwide income (WWI) taxation in Norway, for example, the taxpayer may be a tax resident in Norway and the consideration of whether the taxpayer is a tax resident in Norway under the current rules (which is based on the principle of effective place of management) must be determined based on a period of time (typically the fiscal year). Hence, if a company receives a royalty payment from abroad in January, the tax liability of the royalty income may be uncertain until it is determined whether the company is a tax resident in Norway or not. Similarly, to determine whether a company is a tax resident in a country under the permanent establishment rules in a tax treaty also requires that the consideration of the tax liability is evaluated over a period of time.
In looking closer at this question, one principally fundamental distinction must be made. It is fundamental whether the legal classification follows a division principle or an overall principle. In cases where the
However, if instead a ‘true’
Rules that require a true overall assessment of conditions over a longer period seem to be relatively rare. In Swedish tax law, the best example of such a rule may seem to be the rules for qualified shares in the so-called 3:12 system, regarding the tax rate for dividends from certain smaller companies. See Ch. 57 SITA.
Some rules might be seen as being of a hybrid character, in the sense that their application requires looking at the situation at more than one moment or period.We will here exemplify and briefly comment upon such rules.
One such example from Norway is, as mentioned in Section 2.3, the group contribution rules Norwegian Tax Act § 10-4. Norwegian Tax Act § 2-38 (6) letter c). Norwegian Limited Liability Act (Aksjeloven, 13 June 1997 no. 44) § 8-5.
A second example from Norway is the 3% clawback rule under the participation exemption rule. As a starting point, a dividend received is taxable under the ordinary corporate income tax regime. Norwegian Tax Act § 10-11.
Also, in Finland, payments (legal term is here in Finnish ‘konserniavustus’, in Swedish ‘koncernbidrag’) can be paid between groups of companies, and the tax effect can therefore be effectively transferred between companies (according to Laki Konserniavustuksesta, Lag om koncernbidrag). There are many requirements for this possibility, which are partly based on different moments in time. There is also a very interesting case (HFD 2016/2915), which reflects the possibility of cancelling the payment decision. In this case, the cancellation of the group payment was considered valid even after the end of the relevant accounting period (tax year) because the actual tax decision considering the firm was not yet final. The company argued that they had misinterpreted the requirements in taxation. The tax authorities had inspected their requirements and informed the company (after the tax year’s end) that the requirements of the tax law were not met. During that time, the final tax decision (and the tax documentation from the company) had to be finished (for companies) seven months after the end of the accounting period (tax year, if the accounting period is a normal year 1.1-31.12). Now, this system is in reform (see the later chapter about real-time taxation).
Note, however, that parts of a rule might also be seen as separate (single) rules, with a specific, single, decisive moment or period. It is therefore not given, that these examples are actually to be seen as examples of rules having a hybrid decisive moment. It would be possible, though, to imagine a single tax rule, stating more than one decisive moment (without being a rule relating to a time span).
Obviously, it is common that new information (the term is, thus far, deliberately used in a general, slightly unprecise manner) is found after the decisive moment, that throws retroactive light on the situation at the decisive moment. The significance of such information is, in principle, dependent
There are no explicit tax rules in any of our three Nordic countries that indicate what significance is to be attached to events after the decisive moment – at least there is no general such rule. We want to argue that basically, only the conditions at the decisive moment matter, but that information emerging after this can be used as evidence regarding the situation at the decisive moment. The reasons for this (suggested) principle are basically the same aims and purposes that were given above (2.5) as reasons for ‘choosing’ a relevant decisive moment.
Where the decisive moment is to be placed and to what degree information after this date should be considered are, in our view, two sides of the same coin: The determination of a decisive moment, simply expressed, makes information thereafter irrelevant, other than as the basis for the assessment of the situation at the decisive moment – or as a new separate tax event. Accordingly, those two positions should in principle be answered in the light of the same arguments.
What significance events after the decisive moment have for the assessment of the situation at the decisive moment, and what events that are to be taken into account, may vary depending on what, according to the respective tax rules, should have been the case (the necessary conditions). Therefore, in order to win full precision in handling the temporal issues regarding tax law assessments discussed in this article, it is fundamental to clarify what the current rule aims at and refers to. In this section, we highlight a specific distinction between different kinds of (tax) rules, which have particular significance for the relevance of events after the decisive moment, namely the difference between subjective and objective necessary conditions.
To the extent that a rule relates to (mainly) See more about subjective conditions in taxation; Påhlsson, Skattebetalarens avsikter – Subjektiva rekvisit i skatterätten, Skattenytt 2017 s. 3 ff.
Information obtained after the decisive moment can be used as evidence regarding both objective and subjective conditions, but of course, there can be a significant difference between evidence illustrating the fulfillment of objective or subjective conditions, respectively – although in both cases, evidence must be based in an external reality. In our opinion, it often does not follow clearly from the wording of tax rules whether they take aim at subjective or objective conditions. This does not necessarily imply that the legislation has failed, but it may complicate law enforcement (not least when it comes to evidence).
It goes beyond the purpose of this article to discuss what conditions tax rules ought to have. However, there often seems to be good reasons for giving (objectively) well-founded However, it should be noted that there may be reason for management to act proactively
It should be mentioned that there is no conflict in relation to the principle of the decisive moment in letting a necessary condition be a (well-grounded) prognosis, carried out at the decisive moment (for example, regarding future cash flows or synergy effects). However, if the principle of the primacy of the decisive moment is to be upheld, it is important that what is subsequently examined is whether the prognosis was satisfactory at the decisive moment, not what the outcome turns out to be. However, the outcome may in some cases say something regarding how reasonable a prognosis made at the decisive moment actually was.
A situation can often be more precisely estimated in retrospect, not least because that makes it possible to take into account subsequent information (that has come to existence or merely has been found after the decisive moment). The principles of free production and evaluation of evidence do not preclude using subsequent information as evidence – given that it clarifies whether necessary conditions were fulfilled at the decisive period or moment. This may, for example, be the situation where it is necessary to make a valuation of an asset (
Subsequent information can also be used as evidence concerning what the taxpayer should have done with regard to searching for, and later, in the declaration take into account of, information. Assume, for example, that it appears that it, before the declaration was finished, was relatively easy to find reliable information which, had it been found, would have given rise to changes in the company’s declaration, compared to what was actually stated – but that the taxpayers did not find or use this information. This may lead to the declaration being considered defective and that sanctions may be brought into effect as a result of this.
We see no clear distinction between our respective countries in these issues, but want to note that these issues have not been subject to any focused and unified treatment, for example, in the doctrine.
Sometimes, all conditions for the application of a tax rule are not already met during the period for which the taxpayer wishes the rule to be applied. If so, the application of the rules might be open for, and for its’ application indeed require, that those conditions are met later on, perhaps through a transaction at the beginning of the year after the year under which the rule is to be applied. In this section, we will discuss this phenomenon, here referred to as
In Norway, there are a number of examples of situations where the time of recognition of a transaction is undisputable, but where it is necessary to wait for a period of time, to be able to determine the effect of the transaction. This is, for example, the situation where a taxpayer in Norway receives dividends from a company tax resident in a country outside the European Economic Area. In these situations, the participation exemption only applies if the taxpayer has continuously for a period of two years that includes the date of recognition owned 10 percent or more of the capital and held 10 percent or more of the votes that can be cast in the general meeting. Norwegian Tax Act § 2-38 (3) letter d).
In Finland, the problems of anticipated dividends have been considered by the Supreme Administrative Court (HFD), and there is also an official tax guidance document (Ennakkoosingot verotuksessa) for the practical tax issues related to anticipated dividends (pre dividends as they also are sometimes called in Finland). According to HFD 17.2.1999/254, the system of anticipated dividends is possible under certain conditions. The decision of the HFD is largely based on the Finnish Accounting Board’s opinion on the case (1998/1542). According to the statement, the financial statements should give a true and accurate picture of the results of the accounting officer’s business and its financial position (fair picture). In addition, when preparing the financial statements, caution should be exercised irrespective of the results of the accounting period. In its statement, the Accounting Board has five requirements, and when these are met, the anteceded dividend is bookable. These requirements focus on partly different decisive moments.
According to the Finnish Accounting Board, dividend income and dividend payables can be taken into account already during the concurrent accounting periods (correlation between the accounting periods), for which the dividends are distributed if the following conditions are met:
the recipient company is the parent company, or it has, on the basis of the joint ownership agreement or otherwise, the power of ownership of the dividend distribution company;
the recipient company has notified the dividend company in writing that it will assume a certain size dividend at the Annual General Meeting;
the dividend company’s (extra) general meeting has already taken a preliminary decision on dividend distribution pursuant to Paragraph 2, during the accounting period for which the dividend has been distributed, and the decision is realistic;
the dividend company’s general meeting has, after the end of an accounting period referred to in Paragraph 3, made a decision on the dividend distribution corresponding to the provisional decision based on the established financial statements; and
the dividend recipients have also been informed of the AGM decisions in accordance with Paragraphs 3 and 4 well in advance of the signing of the financial statements.
For the dividend distributing company, the tax year for the dividend remains the same in the system of anticipated dividends as it has been so far. For the recipient company, the provision in BITA Section 19 is applied, according to which, income is income for the tax year during which it was received in cash, in the form of a claim or as another benefit with monetary value. In the system of anticipated dividends, the dividend’s tax year for the recipient company is thus a year earlier. The dividend is recognized as income and dividend receivable in the financial statements for the year for which the dividend is distributed. If the claims made by the Board of Directors in its statement are not fulfilled simultaneously, the dividend is applied according to regular accrual policy.
The final decision on dividends’ distributed at the company’s Annual General Meeting, according to the Board of Directors’ opinion, shall correspond to the preliminary dividend distribution decision. The Finnish tax administration’s view is that, therefore, it is not possible to allocate as an anticipated dividend a smaller amount than mentioned in the provisional decision. If the Annual General Meeting of the dividend company decides on a dividend distribution of a smaller amount than in the preliminary dividend distribution decision, the dividend amount that is to be distributed in its entirety, as a rule, is accrued as a whole. The provisional decision, on the other hand, does not prevent the company from distributing a dividend of a greater amount than mentioned in the provisional decision. It is, therefore, possible that a dividend distributed for a certain year is taxed in the recipient company for several tax years.
The phenomenon conditions regarding future measures give cause to reflect on the correct understanding of the principle of the primacy of the decisive moment. How can the prevalence of conditions regarding future measures be justified? First of all, if it is easy for the taxpayer first to understand that there
It is common ground in all our countries that compound transactions are assessed as a whole, which is referred to as transaction chain judgments. See also the Swedish RÅ 2004 ref. 27.
It would seem that transaction chain assessments in principle would presuppose a departure from the principle of the primacy of the decisive moment, as this is an assessment that takes into account circumstances, including certain subsequent transactions, from after the first transaction. At the same time, the result of such a review seems to be a finding of something that the court would normally have thought to be the case already in the first transaction. It might actually be argued that the first transaction should be considered to be the first in a planned series of concerted transactions that have such strong mutual ties that it seems far-fetched to assess them individually. In general, this could be considered as anticipating an ambition of the taxpayer to circumvent the tax rules through the procedure, thereby reducing his tax burden. In this way,the review would be a result of something that, it might be argued, was already the case at the time of the first transaction. Possibly, in line with this, the later transactions in the chain could be seen as a form of evidence of an intention, and that would actually be deemed to have been preceded and planned, already when the first transaction was carried out. In that case, it is far from obvious that the assessment should be aimed solely at the circumstances visible at the time of the first transaction. Thus, the principle seems to need a level of modification when it comes to transaction chain assessments: An assessment of the real meaning of transactions may require that several compound transactions are seen as a whole.
It is neither a common and thoroughly discussed, nor an entirely unknown, phenomenon within taxation to subsequently
If a subsequent verification is carried out, it could thus mean that an investment (for example, in a research and development project) subsequently fell well and that the outcome, the final result, may control the assessment regarding the right to deduction of the costs for the investment. At least from a practical point of view, subsequent verification, in our opinion, means a departure from the above (3.1) suggested principle of the
An example of a situation in which subsequent verification is used in the legislation is the Swedish rules on tax-exempt public foundations in Chapter 7 of the SITA. According to § 3, foundations meeting the requirements set out in § 4-6 are taxable only for certain kinds of income. Here, the requirements will be discussed based only on the question of the decisive moment. The activity requirement, which is contained in § 5, means that the foundation of the activities carried out during the tax year exclusively promotes one or more of the purposes specified in § 4. If the business requirement is not met during the tax year, consideration can be given to how the requirement has been met in the year before the tax year, in the tax year and in the next fiscal year. It was found in the RÅ 2001 ref. 17 (and similar RÅ 2001 ref. 65), by the Supreme Administrative Court, that the regulatory system provides a certain amount of space for taking into account in the completion assessment what has occurred after the tax year under review – hence, a case of subsequent verification.
Subsequent verification has only been discussed sparingly in Sweden, but there are some notifications about the phenomenon. See, for example, Påhlsson R, Sponsring, Jure 2008 s. 36, 81, 89 och 125. Kellgren J 2016 (supra footnote 5) s. 128-131.
In Finland, the so-called Valmis (= Ready) project, which entails comprehensive information system reform at the Tax Administration, has been initiated. The goal of this reform is to, together with the development of the business processes and legislative reforms relating to the taxation process, save as much management costs as possible before 2022. The planned reforms are supposed to unify and simplify taxation procedures and tax collection.
Real-time taxation is being promoted and taxation systems are being developed. Within business taxation of companies, this means a closer contact and co-operation between the tax administration and the firms. The possible problem areas or points are discussed in advance with the tax authorities. In essence, the advance tax planning also involves the government. If this becomes a basic concept with business taxation, the decisive moment (= tax decision in practice) of taxation can in principle, and also in practice, take place long before the formal/actual moment of taxation. This means that the tax interpretation has been made in advance based on co-operation between tax authorities and the taxpayer (firm). This erases the risk of a negative tax decision in the future yearly taxation. In essence, the tax decisions are made continuously.
At the same time, the government’s ‘Cutting-edge’ project for the settlement of standards is being implemented. Income taxation and property taxation make use of the completion of taxation for individual taxpayers. Taxation of individual taxpayers can still be completed at different times and earlier than at present. This brings forward both the payment of tax returns and the reporting of residual tax and property taxes to the taxpayers.
The obligation to review a pre-tax declaration of taxation and the obligation to submit tax returns remains unchanged. Taxpayers shall provide this information on their tax returns either through an e-service or by special forms for the relevant information. Within the area of tax on sales, tax returns are extended to property transfers.
For income and property taxation, supplementary taxation decisions are introduced as a new procedure. Within this procedure, the tax administration makes a tax decision based on new information that the taxpayer announced after the taxation was completed at the start of the year. The procedure is meant to clarify the boundary between taxation and reconsideration, improve the legal protection of taxpayers and shorten processing times.
An income register updated in real time provides a basis for coordinating labor income and social benefits. The project thus creates a register of citizens’ incomes (income register, in Finnish tulorekisteri), which can subsequently be utilized by the tax administration, employment pension institutions, FPA and other essential parties who need the information in question. The intention is that revenue data is transferred digitally to the registry directly from payroll management systems and other information-producing systems through the development of the new national service channel.
From November 2018, the Finnish corporations must file their income tax returns online. This becomes the basic model for all the taxpayers in 2020. The individuals will file their tax returns via My Tax (OmaVero)-system. Filing tax returns and other notifications online has already been mandatory for self-assessed taxes – such as value-added tax and employer contributions – since 1.1.2017. A total of 80% of corporations already file their income tax returns online.
These new practices for tax filing and additional reform plans mean a very significant change in the Finnish taxation technology, which is difficult to fully overlook in advance. Basically, of course, most tax rules will continue to relate to events or conditions in an outer world. These conditions must, as described earlier in this article, be assessed at a decisive moment or period. In
However, an overall reflection is that the more ‘real time’ taxation is to be, the lesser the (time)space there would be to determine conditions for a period (moments are often closer to ‘real time’ than periods). There should also be less room for taking into account events after the crucial date since taxation is to be determined immediately. This new era of taxation will also include the cooperation of taxpayers and tax authorities in advance making the actual (real) tax decision in principle a continuous act.
It may, therefore, be considered important to allow adjustments of already established taxation due to events and information that could have been taken into consideration by traditional taxation technology. Not least, accruals seem to be labor-intensive and complicated to handle, so to speak, in every moment. The same can be said of such boundaries that, in practice, refer to and require an overview of a period, for example, relating to tax settlement. Such changes may conflict with the Finnish confidence protection in the taxation procedure, which limits the tax authority’s right to unilaterally and retroactively change tax decisions. However,we want to emphasize that these reflections are based only on a vague and preliminary picture of the future of Finnish taxation technology. It will certainly be interesting to monitor this development.
The purpose of this study was to present these questions, their logic and significance, and to give a comparative overview of the legal situation and discourse in this regard, in our respective countries. Starting at the comparative end of the study, what we have seen indicates a high level of similarity between our countries, in terms of what questions, solutions, models and problems that are used/occur, regarding the questions of where the decisive moment is placed (or is to be placed) and regarding the importance of events thereafter.
It has also been interesting to see the question of the decisive moment in relation to the question of retroactivity, and maybe especially in relation to Norway. As mentioned above, in Norway (and in most other countries), the income tax is calculated on a net income during an income period. When the Norwegian Parliament changes the tax legislation during an income period, the tax authorities must determine whether the change in legislation should be given effect for the whole period, or just for the remaining time of the income period. It seems to be a common understanding that new/amended tax rules may be applied on the net income from the whole period of income. However, if the change in legislation is to the taxpayer’s disadvantage, the new/amended legislation is normally not applied to the pre-period of the new/amended legislation. This does not, however, change the fact that the question of the decisive moment and the question of retroactivity are two fundamentally different things.
The recent Finnish changes and future plans regarding ‘real-time taxation’ are highly interesting and may result in important changes and country-specific methods, but this is yet so early in the process that we will have to await for a more elaborated outline before any certain conclusions can be drawn.
If we are right regarding these similarities (a more thorough investigation would give a safer basis for conclusions), perhaps this is a sign that these are
In this article, we have tried to present these tricky questions, their logic and significance – and along the way,a tentative nomenclature has taken shape. Hopefully, this was only a starting point. These are, needless to say, questions for tax law experts to look into – especially, perhaps, from a legislator perspective.
The legislator has to really think through, where to place the decisive moment, and why, and how to make each new tax rule clear with regard to its decisive moment (it does not have to be expressly stated though, as long as it is clear). In our opinion, there seems to be good reasons for letting well-founded subjective perceptions of the taxpayers at the transaction date play a significant role in most tax rules, but to give more emphasis on objective factors when it comes to the assessments that are better made at the end of the fiscal year. From a predictability perspective, the decisive moment should be placed at the time of the transaction.
These questions are, however, not to be answered by politicians or tax law scholars alone. Instead, in order to discuss and handle these questions in the best way, there is good reason to involve philosophers, economists, tax law practitioners, accountancy specialists (not least their experiences from what is referred to as events after the reporting period Kellgren, J, IAS 10 Events after the Reporting Period Problematized – Some Questions Regarding the Standard’s (Read by its Letter) Understandability”, Skattenytt academic Issue 2018 pp. 3-35 and 2016 (supra footnote 5) Chapter 2.