Advance Rulings

Highlights
A structure has been introduced into the Income Tax Act for the application of certain advance rulings. The relevant provisions came into effect on 1 July 2006, and the office opened for business in mid-October 2006. The purpose of these rulings is to promote consistency and certainty regarding the interpretation of the Act. The Commissioner has prescribed that access to the relevant department is by way of e-Filing. An applicant must submit a document containing a complete description of the impact of the proposed transaction on the tax liability of the applicant or any connected person and deal with the relevant information regarding the financial or tax implications of the proposed transaction.

A taxpayer needs to argue the reasons why the applicant believes he should be granted the proposed ruling, and one needs to consider the relevant authorities and state those which support the applicant’s argument and those which are contrary to the proposed ruling being sought.

The applicant needs to furnish a statement that, to the best of his knowledge and belief, the same (or substantially similar) issue has not been the subject of any audit examination, investigation, ruling application, objection and appeal or other proceeding, currently before the Commissioner or a court involving the applicant or a connected person. One also needs to furnish a draft version of the binding private ruling or binding class ruling which one seeks. In order to protect the applicant’s confidentiality, one needs to stipulate in the application which information the applicant believes should be deleted from the final ruling in order to protect his confidentiality. The applicant will also need to consent to the publication of the ruling.

There will be three types of rulings:

• A binding general ruling, where the Commissioner will initiate issuing such a ruling on topics of general interest. These will be binding upon the Commissioner and both the Commissioner and the taxpayer will be entitled to cite them in proceedings before the Commissioner or before the courts. The Commissioner is entitled to withdraw or modify this type of ruling but this cannot take place without publication of a notice of such action.
• A binding private ruling will be issued in response to an application by a taxpayer. This ruling will only be binding upon the Commissioner with respect to the applicant and the proposed transaction. They cannot be relied upon or cited as precedent by any other taxpayer. The Commissioner will prescribe fees including both an application fee, and a cost recovery fee. The statute authorises the Commissioner to withdraw or modify these rulings prospectively. The Commissioner is obliged to withdraw or modify these rulings if there are persons, other than the person to whom the ruling was given, who will suffer significant disadvantages if the ruling is not withdrawn, or the persons to whom the ruling was given will suffer comparatively less if the ruling is not withdrawn. These rulings will be published by the Commissioner for general information, but will not reveal the identity of the applicant.
• A binding class ruling – this will also be initiated by taxpayers. It will set forth the Commissioner’s opinion regarding the application or an interpretation of the law applicable to a specific class of taxpayer in respect of a proposed transaction or arrangement.

The purpose of these rulings is to relieve each participant of the need to apply for a separate binding private ruling. The Commissioner is empowered to charge fees for a binding class ruling. This ruling was promulgated on the 1 October 2007

The Commissioner will not entertain an application for an advanced tax ruling if:

• it requires an opinion with regard to the market value of an asset, the interpretation of the laws of a foreign country, or the pricing of goods or services supplied by or rendered to a connected perso
• the constitutionality of any tax law or proposed transaction that is hypothetical or not seriously contemplated;
• it relates to whether a person has independent contractor status;
• the application is submitted for academic purposes;
• it presents, contains or raises frivolous or vexatious issues;
• it is an issue that is the same or substantially similar to an issue that is currently before him with regard to an audit examination or investigation in relation to the applicant, or is the subject of draft legislation or a case pending before the courts;
• it relates to the application of the general or specific anti-avoidance provisions or is an issue of an inherently factual nature;
• material facts of the application cannot be established at the time of the application;
• the resolution of the issue depends upon assumptions being made with regard to a future event;
• it would more appropriately be dealt with by the competent authorities of the parties to a double tax agreement;
• it is the same or substantially similar to an issue upon which the applicant has already received a ruling;
• the tax treatment of the applicant is dependent upon the tax treatment of another party to the proposed transaction and that other party has not applied for a ruling;
• it is in respect of a transaction that is part of another transaction which has a bearing on the issue and the details of the other transaction have not been disclosed; or
• it is a matter where the resolution will be unduly time consuming or resource intensive.

The Commissioner has indicated that VAT rulings granted before 1 January 2007, in respect of supplies made after 1 January 2007, will need to be confirmed by application to the ATR office, in Binding General Ruling (VAT) No 2 before the dates specified therein. In respect of previous supplies (made before 31 December 2006 and not to be made again), those rulings will remain binding.