The Tax Board may not assume the role of a legislator

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The Tax Board may not assume the role of a legislator

The Estonian Bar Association emphasized in its statement to the Tax and Customs Board that new rules affecting taxes and tax obligations cannot be established through tax authority guidelines and official documents, as in a rule of law, they must come solely from the legislature.

"The Tax and Customs Board is working on a guideline that could lead to the taxation of transactions and actions that have not been taxed so far. This would significantly alter the practices of corporate acquisitions and the respective sector," said Villy Lopman, Chairman of the Bar Association's Tax Law Commission. "Tax laws can only be changed by the legislature, not by the executive branch through its guidelines."

Lopman explained that the current Income Tax Act certainly needs explanatory guidelines, but their purpose should be to assist law-abiding taxpayers, not to covertly create new tax norms. "Under no circumstances should guidelines be seen as a cunning way to create new tax norms while bypassing the legislature," he noted. "New legal norms must begin with the formulation of the legislature's will, undergo the usual democratic process in the Riigikogu, and include impact assessments."

The proposed guideline would significantly change the taxation of corporate leveraged acquisitions (so-called debt push-down). The current law does not tax such transactions, but the Tax and Customs Board in the proposed guideline assumes the opposite presumption that such transactions may be taxable in certain cases. The Bar Association particularly considers it problematic that the proposed guideline does not explicitly exclude the establishment of new rules retroactively. According to Lopman, the guideline should under no circumstances increase confusion and exacerbate its application retroactively.

However, the Bar Association acknowledges the Tax and Customs Board for dealing with guidelines and involving the Bar Association in the preparation of the guideline. "We believe that our common goal is to reach a guideline that simplifies understanding of the laws and helps taxpayers comply with existing laws," said Lopman. "If new rules are needed, they must be established by the legislature and also take political responsibility. The Bar Association brings together over a thousand top legal specialists and we are certainly ready to contribute to the creation of a quality legal environment."

The Estonian Bar Association is a state-independent public-law organization that unites lawyers, organizes the provision of legal services, advocates for the professional rights of lawyers, and oversees compliance with the professional suitability requirements and professional ethics of lawyers.