binding ruling

noun · verbindliche Auskunft

German tax law has two binding rulings and English has one word for both. The verbindliche Auskunft under § 89 Abs. 2 AO is applied for before the transaction is carried out and costs a fee; the verbindliche Zusage under §§ 204 ff. AO follows an audit and covers a situation already examined. Choosing the wrong term puts the ruling at the wrong point in time.

Which translation, when

verbindliche Auskunftthe forward-looking ruling: on application the tax office may give binding information about the tax treatment of precisely described situations that have not yet been carried out, where a substantial tax interest in the answer is shown; the application is subject to a fee scaled to the amount at stake, and the office is bound if the situation later realised matches the one described.

verbindliche Zusagethe backward-looking one: following an audit the office is to assure the taxpayer on application how a situation examined for the past and set out in the audit report will be treated in future, where knowing that treatment matters for his business decisions; the assurance is given in writing, states the facts relied on, and binds unless it conflicts with the law.

Wortfeldthe neighbouring things: an Anrufungsauskunft covers wage tax questions and follows its own rules, an advance pricing agreement concerns cross-border transfer pricing and rests on treaty procedures, and an ordinary letter from a tax officer binds nobody, so the English word ruling should never be translated without asking which of these instruments the source means.

Why

Binding ruling has to be sorted before it can be translated, because German tax procedure offers two distinct instruments and they sit at opposite ends of the timeline. The verbindliche Auskunft of § 89 Abs. 2 AO looks forward. A taxpayer who is planning a transaction and needs certainty applies to the tax office, describes the intended situation precisely, shows a substantial tax interest in knowing the treatment in advance and receives an answer that binds the office if the situation is later realised as described. The application costs a fee calculated on the amount at stake, which is why it is used for restructurings and large transactions rather than for routine questions. The verbindliche Zusage of §§ 204 to 207 AO looks backward and forward at once. It is available only after an audit: on application the office is to assure the taxpayer how a situation that was examined for past periods and set out in the audit report will be treated in the future, provided that knowing the answer matters for his business decisions. It is given in writing, records the facts relied on and binds the office unless it turns out to conflict with the law, and it lapses or can be withdrawn under the conditions the Code sets. A translation that renders both as binding ruling without qualification therefore leaves the reader unable to say whether the ruling concerns a planned transaction or an audited one. Two neighbouring instruments should also stay apart: the Anrufungsauskunft in wage tax matters, and the advance pricing agreement for cross-border transfer pricing, which rests on treaty machinery rather than on the Fiscal Code.

Typical mistakes

The verbindliche Auskunft precedes the transaction and the verbindliche Zusage follows an audit, so one English term for both places the ruling at the wrong point in time.
The forward-looking ruling requires an application, a precise description and a fee, so treating it as informal guidance understates what is needed.
An ordinary letter or telephone answer from a tax officer binds nobody, so calling it a ruling overstates its effect.

What matters

Deciding how to secure a German tax position: the memo should distinguish the verbindliche Auskunft for a planned transaction from the verbindliche Zusage available after an audit, and mention the fee for the former.

Authority

§ 89 AO
§ 204 AO
§ 206 AO

What the machine misses

Left to a machine, binding ruling becomes bindende Entscheidung or verbindlicher Bescheid, neither of which the Fiscal Code knows, and German has two instruments, the verbindliche Auskunft applied for before a transaction and the verbindliche Zusage given after an audit; the single rendering leaves the reader unable to place the ruling in time.

See what the machine does with this clause →

Examples

a binding ruling on a planned transaction	eine verbindliche Auskunft
a binding assurance following a tax audit	eine verbindliche Zusage
a substantial tax interest	ein besonderes steuerliches Interesse
the ruling binds the tax office	die Auskunft bindet das Finanzamt