Estonian CIT and company reorganisations – new protective opinion from the Head of the National Revenue Administration

On 1 August 2025, the Head of the National Revenue Administration issued a protective opinion (ref. DKP16.8082.1.2025), which is of significant importance for companies planning to switch to Estonian CIT after undergoing reorganisation.

In the case in question, the authority found that the redemption and sale of shares leading to the elimination of an investment fund from the group of shareholders, followed by a change in the form of taxation to Estonian CIT, did not constitute tax avoidance.

The tax benefit is not contrary to the Act

The measures described in the application were aimed at eliminating the investment fund from the group of shareholders and included, among other things, the partial redemption of the company’s shares and the sale of shares to natural persons, which led to the fulfilment of the formal conditions for the implementation of a lump-sum tax on the income of companies, i.e. that the shareholders are exclusively natural persons.

The head of the National Revenue Administration acknowledged that these measures resulted in certain tax benefits, including those related to the application of the Estonian CIT, but emphasised that these benefits stem directly from the law and are not contrary to the purpose of the tax law.

Economic justification is the key to security

The head of the National Revenue Administration has confirmed that the occurrence of favourable fiscal effects cannot determine their conflict with the purpose of the tax law. The authority has indicated that the benefits are a direct result of the structure of the provisions, and that their achievement is linked to the pursuit of real economic objectives.

A key factor in the decision-making process was the assessment that the method of operation did not fall under the definition of artificial within the meaning of the Tax Ordinance. The reorganisation model used was considered adequate for the business objectives and could also have been chosen if the tax effects had not played a significant role. This approach enabled the authority to conclude that not all the conditions of Article 119a of the Tax Ordinance were met in this case. As a result, there were no grounds for applying the anti-avoidance rule (GAAR).

Significance for taxpayers

The advance ruling confirms that the implementation of Estonian CIT as a consequence of reorganisation processes, even if it brings significant tax benefits, can be completely safe, provided that there is a rational and well-documented economic justification for the measures taken. In practice, this means that entrepreneurs planning similar operations can successfully apply Estonian CIT, but should ensure that they provide detailed evidence of the business, regulatory and financial reasons behind the reorganisation.

MDDP comment

The ruling aligns with established practice, whereby tax authorities are willing to accept the benefits resulting from the structure of the regulations, provided that taxpayers can demonstrate their close link to real economic needs. Consequently, this opinion could be pivotal in future disputes concerning Estonian CIT, as it demonstrates that the mere existence of tax savings is insufficient to invoke the anti-avoidance clause. Therefore, taxpayers can be confident of greater legal certainty when planning reorganisations involving the entry into the Estonian CIT, although careful preparation of documentation and proof that business motivations outweigh fiscal ones will still be crucial.