## _tltn1602 - conclusions of fact. Further, an advance tax ruling system

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### Design and scope of an advance tax ruling (ATR) regime
- An advance tax ruling system can be designed to issue rulings:
  - in relation to a transaction currently being considered but not yet undertaken; and
  - to a transaction which has been undertaken but in respect of which a tax return has not yet been filed.
- Typical limitations on scope are commonly adopted.
- A sample set of provisions establishing an ATR regime is set out at Appendix B (general and simplified).
- Overarching legal framework may:
  - support the power of the tax authority to issue rulings; and
  - codify the key features of the advance ruling regime.
- Detailed procedural rules can be placed in regulations or interpretative/guidance notes rather than the overarching law.

### Identification of issuing authority; centralization
- Private tax rulings are commonly issued by a specialized and centralized unit of the tax authority.
- Centralization supports quality control, consistency, oversight, and internal information sharing.

### Binding force, precedential effect, and review
- A private tax ruling should take the form of legally binding advice which a taxpayer may seek from the tax authority.
- The ruling typically binds the tax authority such that the taxpayer will ordinarily be protected from additional tax, penalties and interest when relying on the ruling issued.
- The benefit of a private tax ruling should ordinarily be personal to the taxpayer to whom the ruling is issued.
- Whether the tax authority’s decision in a ruling should be subject to administrative and/or judicial review is jurisdiction-specific.
  - It could be appropriate not to make the decision reviewable where the ruling is binding on the tax authority but not the taxpayer, because the taxpayer can appeal an assessment made in accordance with an adverse ruling if the taxpayer proceeds with the transaction despite the adverse ruling.
- The tax authority should be able to withdraw a ruling where reasonable cause exists (e.g., mistake in interpretation, inconsistency with international obligations).
- Private rulings—even unpublished—have some precedential effect because they will inevitably become known through the tax advisory community.

### Cost-recovery fee structures
- International practices diverge on charging fees for advance tax rulings.
- Arguments against fees:
  - Could undermine neutrality and independence.
  - High relative cost may undermine equal access.
  - Fees used to limit demand may restrict legitimate engagement under self-assessment.
  - Examples of jurisdictions that do not charge a fee or time-based charge: the Netherlands, Australia, Belgium.
- Arguments in favor of cost-recovery fees:
  - May overcome initial implementation difficulties and limit surplus initial demand.
  - The value of certainty to taxpayers likely far outweighs cost under cost-recovery.
  - Recovering costs from beneficiaries is appropriate given need for highly qualified teams.
  - Consider charging a higher cost-recovery fee for more urgent and expedited rulings.
- Appendix A contains comparative information about international revenue rulings systems where private rulings are subject to fees.

### Considerations when establishing an ATR regime (policy guidance)
- Authorities should carefully consider introduction so as not to adversely impact existing capacity and resources.
- Key considerations and recommended entry strategy:
  - Limit the regime to proposed, immediately executable, complex and more significant transactions under very serious contemplation by taxpayers.
  - Only consider expanding scope (e.g., to transactions already undertaken but not yet with a filed tax return) as the tax authority gains more experience.
  - Ensure the ruling is binding on the tax authority as against the taxpayer to whom the ruling is issued.
  - Consider that the ruling should not be binding on the taxpayer; in that case the ruling need not be subject to administrative or judicial review.
  - Consider publishing edited versions of private advance rulings issued as best practice for transparency.

### Case for and against private rulings — Arguments in favor (advantages)
- Promotion of clarity and consistency regarding application of the tax law; creates a body of individual decisions for consistent application.
- Enhancement of certainty of tax treatment, increasing taxpayer/investor confidence.
- Fostering compliance with tax law to ensure proper functioning of a self-assessment system.
- Strengthening relationships between taxpayers and the tax authority; complements cooperative compliance programs.
- Reduction in conflict by resolving technical issues before formal disputes arise (rulings may be appealable like other assessments).

### Case for and against private rulings — Arguments against (disadvantages)
- Risk of base erosion where incorrect or inappropriate rulings are issued or published; revenue risk is limited by confining application to the recipient taxpayer.
- Risk of ‘privatization’ of tax law where:
  - regime is used to attract tax base from other jurisdictions;
  - substantial application cost exists (e.g., very detailed requirements);
  - private rulings are not made public.
- High relative cost undermines equal access, particularly for taxpayers with limited resources.
- Where law is uncertain, private rulings may amount to private or administrative lawmaking (State Aid concerns in Europe).
- System can be costly to administer; may need to focus on other reform priorities first.
- Process can take too long in complex matters; publication mitigates some concerns and can reveal legal uncertainties earlier for legislative intervention.

### IV. Best practice design features — Procedural aspects (introductory)
- A private advance tax ruling regime should be established and maintained within a legal framework containing specific provisions or rules governing its operation.
- A sample set of provisions establishing an advance tax rulings regime is set out at Appendix B.

### Appendix B — Typical private ruling procedure steps
- Preparation and filing of application:
  - Application can be prescribed form or other written form.
  - Typically includes detailed description of the transaction, detailed submissions on application of relevant tax law, and all supporting documentation.
- Timing of filing:
  - (say 30 to 40 days) before the date of the proposed transaction for which an advance tax ruling is sought.
- Review of application:
  - Application assigned to a case officer for review.
- Notice of acceptance:
  - Case officer notifies whether application meets prescribed requirements and issues an individual case number.
- Substantive review:
  - Case officer proceeds with detailed review; may request additional information or clarification.
  - Application should go through an appropriate internal review process (e.g., two level review process).
- Notice of proposed ruling:
  - Taxpayer notified of proposed outcome (favorable or unfavorable).
  - Favorable: taxpayer provided draft ruling to review factual description and scope.
  - Unfavorable: taxpayer may be given opportunity to make further submissions or modify application.
- Issuance and publication of ruling:
  - Publishing private rulings in redacted form is considered best practice.
  - Published rulings are edited to remove identifying content and should provide a general summary, the conclusion with reasons, and the period over which the ruling applies.

### Appendix B — Scope (examples and appropriateness)
- ATR systems can be designed to cover any issue in application of tax law, including liability, administration and conclusions of fact.
- Jurisdictional examples:
  - Australia: private rulings may cover a very broad range including conclusions of fact and application of general anti-avoidance rule.
  - South Africa: specific exclusions and grounds for refusal, including factual issues and some anti-avoidance provisions.
- When issuing a ruling is typically appropriate:
  - Uncertainty not readily resolved via existing guidance;
  - Issue is complex;
  - Issue involves a significant amount of tax;
  - Issue is sufficiently material to warrant formal legal certainty;
  - There is sufficient time: Most advance tax rulings require a minimum of 30 days before being issued. However, it is not unusual for rulings in other jurisdictions to take between 60–90 days to be issued.
- When issuing a ruling is typically inappropriate:
  - Issue is subject of an audit or objection, or relates to an issued tax assessment;
  - Application/interpretation of foreign law;
  - Constitutionality of tax law;
  - Appropriateness of pricing to distinguish from an APA;
  - Issuance would prejudice or unduly restrict administration;
  - Application is frivolous or vexatious;
  - Proposed transaction is speculative and not under serious contemplation;
  - No practical consequences (historic transaction with expired amendment period);
  - Ruling depends on assumptions about events or third parties not reasonable at time of ruling.

### Ruling authority (operational notes)
- Best practice reasons for centralization:
  - Consistency across rulings, oversight of practice, quality control, and internal information sharing with audit services.
- Jurisdictional notes:
  - South Africa: binding ruling may only be issued by the Legal and Policy Division: Advance Tax Rulings Unit at the SARS Head Office.
  - Canada: advance rulings issued by the Rulings Office, a centralized CRA headquarters’ office.
  - Sweden: notable exception—private rulings issued by a body independent from the tax administration.

### Binding force and precedential effect (detailed)
- A private tax ruling constitutes legally binding advice and typically binds the tax authority so the taxpayer is ordinarily protected from additional tax, penalties and interest when relying on it.
- The binding nature may endure even if the advice is later held incorrect (e.g., by a court).
- Benefit of a private tax ruling is personal to the recipient taxpayer; other taxpayers cannot derive legal rights from it.
- Reasons for confining benefits to the recipient:
  - Limits systemic revenue risk.
  - Limits inappropriate application as broadly binding given unique factual bases.
- Best practice suggests disclosing private rulings in sanitized form and exchanging them internationally within an accommodative legal framework.

### Administrative/judicial review (procedural choice)
- Determination required whether ruling decisions should be subject to administrative and/or judicial review.
- Non-reviewable approach may be appropriate where ruling is binding on the tax authority but not the taxpayer, since the taxpayer retains appeal rights against assessments.

### Publication of rulings (transparency and reporting)
- Publishing and reporting private rulings (even redacted) is considered best practice to promote transparency, legislative oversight, and certainty.
- Tax authority should publish an annual report including:
  - the total number of rulings granted and an estimate of their revenue impact;
  - the number of rejected advance tax ruling applications.
- Rationale: provides parliamentary oversight or national audit office the basis to debate the regime.
- Risks of non-publication:
  - Confidential rulings not published can lead to “private law making” outside normal legislative process.
  - Private rulings should not short circuit legislative policy ratification or obscure international commitments.
- International exchange:
  - Published/sanitized domestic rulings should be exchanged internationally with an accommodative legal framework.

### Exchange of rulings (international coordination)
- Strong arguments favor exchanging rulings between jurisdictions because private rulings in one jurisdiction can adversely affect others (e.g., preferential rulings enabling profit shifting).
- Effectiveness requires an accommodative legal framework broad enough to cover cross-border concerns.
- Recent international initiatives:
  - OECD Forum on Harmful Tax Practices and Action 5 of the OECD/G20 BEPS Project: compulsory spontaneous exchange on six categories of rulings (preferential regimes; unilateral APAs or other cross-border unilateral rulings in respect of transfer pricing; cross-border rulings providing for a downward adjustment of taxable profits; permanent establishment (PE) rulings; related party conduit rulings; and any other type of ruling agreed by the Forum that gives rise to BEPS concerns).
  - EU Commission’s Tax Transparency Package and Council Directive (EU) 2015/2376: framework for automatic exchange of advance cross-border rulings and advance pricing agreements between EU member states and the European Commission from January 1, 2017 onwards.
- OECD vs EU: OECD focuses on preferential regimes and BEPS concerns with mandatory spontaneous exchange; EU covers all intra-EU cross-border tax rulings with automatic exchange coordinated through the EU Commission.

### Appendix A — Selected features of revenue ruling systems (highlights)
- Jurisdictions set specific time limits, extension provisions, and fees; examples:
  - Australia: extended reply date negotiated where matters take more than 28 days after receipt of required information.
  - Austria: from 2011 only private rulings on group taxation, business restructuring or transfer pricing are binding and fees charged.
  - Canada:
    - Income Tax – within 90 business days of receipt of all essential information from the client;
    - GST/HST – within 45 working days of receipt in the CRA.
    - Only private rulings on income tax matters are subject to a fee.
  - Estonia: provision to extend by 30 days.
  - Greece: private rulings only apply as regards to Advance Pricing Agreements (APAs).
  - India: Circulars are public guidance; Authority of Advance Rulings exists for taxpayers to approach.
  - Israel: Fees required only for rulings on mergers and acquisitions.
  - Latvia: 1 month is norm but may be extended up to 4 months.
  - Lithuania: 60 days norm plus further 60 days where additional examination required.
  - Portugal: 150 days norm but can be 90 days if urgency request accepted.
  - Singapore: 8 weeks for income tax and 4 weeks for GST; expedited rulings for additional fee.
  - Slovak Republic:
    - No general period, but binding statements from 1 September 2014: issuing period 60 days from written request delivery (max. 6 calendar months after consultation).
    - Required fee is 1% (at minimum EUR 4 000), 2% (at minimum EUR 5 000) or 3% (at minimum EUR 6 000) of the assumed business case value.
    - These binding statements are binding for the revenue body and the second-instance (appellate) authority.
  - South Africa: depends on complexity of ruling.
- Variations exist by tax type and expedited processes for additional fees.
- Several jurisdictions limit binding effect of private rulings on the revenue body (e.g., Austria, Italy, Slovak Republic).
- Some countries apply explicit time limits (e.g., Canada 90 business days; Estonia extendable by 30 days; Lithuania 60 days plus 60 days; Portugal 150 days or 90 days if accepted; Singapore 8 weeks/4 weeks).

### Appendix B — Sample legislative provisions (high-level summary)
- General remarks:
  - Sample provisions are simplified and intended to establish a framework; detailed procedures may be in regulations or guidance notes.
- Chapter I — Private Rulings: selected Articles
  - Article 1. Binding Private Rulings
    - Taxpayer may apply in writing and must include full details and opinion.
    - Subject to Article 2, tax authority shall, within 60 days of receipt of the application, issue a private ruling.
    - If full and true disclosure and transaction proceeds materially as described, private ruling is binding on the tax authority as against the identified taxpayer but not binding on other taxpayers.
    - A private ruling is not binding on a taxpayer.
  - Article 2. Refusing an Application for a Private Ruling
    - Tax authority may refuse if question already decided, subject to audit/objection, frivolous, transaction unlikely to be carried out, insufficient information, unreasonable resource burden, or involves application of a tax avoidance provision.
    - Written notice of refusal must be served.
  - Article 3. Making a Private Ruling
    - Made by serving written notice; may be based on assumptions about future events.
    - Must state it is a private ruling, set out the question, identify the taxpayer, relevant tax law, tax period, transaction, and assumptions.
    - Ruling remains in force until withdrawn under Article 4.
    - Ruling sets out tax authority’s opinion and is not a decision subject to formal review under this law; does not limit taxpayer rights with respect to related tax assessments.
  - Article 4. Withdrawal of a Private Ruling
    - Tax authority may withdraw for reasonable cause by written notice.
    - When inconsistent legislation is passed, the private ruling is treated as withdrawn to that extent.
    - Withdrawal effective from date specified or date of application of inconsistent legislation.
    - Withdrawn ruling continues to apply to transactions commenced before withdrawal; does not apply to transactions commenced after withdrawal to the extent withdrawn.
  - Article 5. Publication of Private Rulings
    - Tax authority must publish a ruling in the Gazette without indicating applicant identity.
    - When a ruling is withdrawn, tax authority must publish notice of withdrawal stating when ruling ceases to be binding.

*Source: _tltn1602 - conclusions of fact. Further, an advance tax ruling system*

### conclusions of fact. Further, an advance tax ruling system

### _tltn1602 - conclusions of fact. Further, an advance tax ruling system

### Design and scope of an advance tax ruling (ATR) regime
- An advance tax ruling system can be designed to issue rulings:
  - in relation to a transaction currently being considered but not yet undertaken; and
  - to a transaction which has been undertaken but in respect of which a tax return has not yet been filed.
- It is typical to adopt some limitations on scope (discussed below).
- A sample set of provisions establishing an ATR regime is set out at Appendix B; these provisions are general, simplified, and do not take into account the individual circumstances of any particular tax system.
- The overarching legal framework may simply:
  - support the power of the tax authority to issue rulings; and
  - codify the key features of the advance ruling regime being established.
- Detailed procedural rules can be placed in underlying regulations or interpretative/guidance notes rather than in the overarching law.

### Identification of issuing authority; centralization
- Private tax rulings are commonly issued by a specialized and centralized unit of the tax authority.
- The note references prior discussion (footnote 4) on private letter rulings practices.

### Binding force, precedential effect, and review
- A private tax ruling should take the form of legally binding advice which a taxpayer may seek from the tax authority.
- The ruling typically binds the tax authority such that the taxpayer will ordinarily be protected from additional tax, penalties and interest when relying on the ruling issued.
- The benefit of a private tax ruling should ordinarily be personal to the taxpayer to whom the ruling is issued.
- Whether the tax authority’s decision in a ruling should be subject to administrative and/or judicial review needs to be determined by the jurisdiction.
  - It could be appropriate not to make the decision reviewable where the ruling is binding on the tax authority but not the taxpayer, because the taxpayer can appeal an assessment made in accordance with an adverse ruling if the taxpayer proceeds with the transaction despite the adverse ruling.

### Cost-recovery fee structures
- International practices diverge on charging fees for advance tax rulings.
- Arguments for and against fee-based structures are discussed further in Section IV under F.
- Appendix A contains comparative information about international revenue rulings systems where private rulings are subject to fees.
- Examples of jurisdictions and fee practices cited include:
  - Some jurisdictions do not charge a fee or any time-based charge (e.g., the Netherlands, Australia, Belgium).
  - Some countries (e.g., Canada) have chosen to charge a time-based fee to address administration cost concerns.

### Considerations when establishing an ATR regime
- Authorities should carefully consider the introduction so as not to adversely impact existing capacity and resources, which could undermine service and quality expectations.
- Considerations include:
  - Limit the regime to proposed, immediately executable, complex and more significant transactions under very serious contemplation by taxpayers.
  - Only consider expanding scope (e.g., to transactions already undertaken but not yet with a filed tax return) as the tax authority gains more experience with advance rulings.
  - Ensure the ruling is binding on the tax authority as against the taxpayer to whom the ruling is issued.
  - Consider that the ruling should not be binding on the taxpayer; in that case the ruling need not be subject to administrative or judicial review.
  - Consider publishing edited versions of private advance rulings issued as best practice for transparency.

### III. The case for and against private rulings — Arguments in favor (advantages)
- Promotion of clarity and consistency regarding the application of the tax law for both taxpayers and the tax authority; creates a body of individual decisions enabling consistent application to taxpayers in the same or similar circumstances.
- Enhancement of certainty of tax treatment of transactions and dealings, increasing taxpayer/investor confidence; rulings are typically issued in the context of proposed transactions to be entered into in the near future or under very serious contemplation by the taxpayer.
- Fostering compliance with the tax law to ensure proper functioning of a self-assessment system; unfavorable or limited favorable rulings can deter taxpayers from entering into particular arrangements and can alert practitioners and authorities to previously unconsidered tax issues.
- Strengthening relationships between taxpayers and the tax authority, with enhanced cooperation leading to a more efficient tax system; a rulings practice complements cooperative compliance programs (see footnote 5).
- Reduction in conflict by resolving tax technical issues before formal disputes arise, although rulings themselves may be appealable in the same way as other tax assessments or decisions (see footnote 6).

### III. The case for and against private rulings — Arguments against (disadvantages)
- Risk of base erosion where incorrect or inappropriate rulings are issued or published; an incorrect ruling can give rise to a loss in tax revenue.
  - The revenue risk is limited by design because application of an advance tax ruling is confined to the taxpayer to whom it was issued.
  - An advance ruling system may alert tax authorities to potential structural weaknesses in the tax legal framework (footnote 7).
- The system can lead to ‘privatization’ of the tax law, particularly where:
  - the regime is used to attract tax base from other jurisdictions;
  - there is a substantial cost associated with applying for a ruling (e.g., very detailed application and supporting information requirements); and/or
  - private rulings are not made public.
  - A high relative cost undermines equal access to the system, particularly for taxpayers with limited resources (footnote 8).
  - Where the law is uncertain or unsettled, a private ruling may amount to private or administrative lawmaking; this has given rise to State Aid concerns in Europe (footnote 9 and 10).
- The system can be costly to administer compared with no system, so a country may need to focus on other critical tax reform priorities before introducing an ATR regime; in countries where capacity exists, additional administration costs should be offset by benefits of an effective system.
- The process can take too long to issue or publish rulings, particularly in complex and/or significant matters; lengthy delays may undermine the key objective of providing timely certainty. Publication mitigates some concerns and a rulings practice may reveal legal uncertainties earlier, allowing intervention by the lawmaker where appropriate (footnote 9).

### IV. Best practice design features — Procedural aspects (introductory point)
- A private advance tax ruling regime should be established and maintained within a legal framework containing specific provisions or rules governing its operation.
- A sample set of provisions establishing an advance tax rulings regime is set out at Appendix B.

*Source: _tltn1602 - conclusions of fact. Further, an advance tax ruling system*

### Appendix B. A private ruling procedure typically involves

### Appendix B. A private ruling procedure typically involves the following steps

### Procedure steps
- Preparation and filing of application:
  - The application can take a prescribed form or can be made in another written form (e.g. by way of letter application).
  - The application would typically include a detailed description of the transaction or scheme, together with detailed submissions in relation to the suggested application of the relevant tax law to that transaction or scheme, as well as all supporting documentation.
- Timing of filing:
  - (say 30 to 40 days) before the date of the proposed transaction for which an advance tax ruling is sought (to enable the tax authority to deliver the ruling in a time frame that is of use to the taxpayer).
- Review of application:
  - The application will typically be assigned to a case officer for review.
- Notice of acceptance:
  - The case officer will notify the taxpayer whether the application meets the prescribed requirements and will issue an individual case number (internal reference) to the extent not previously issued (e.g. at the time of filing the application).
- Substantive review:
  - The case officer will proceed with the detailed review and consideration of the application.
  - During this process, the case officer may request additional information or clarification in relation to the application.
  - The ruling application should go through an appropriate internal review process (e.g. two level review process) before making a decision to grant a ruling.
- Notice of proposed ruling:
  - Following the completion of the review process, the taxpayer will be notified of the proposed outcome of the ruling (i.e. favorable or unfavorable).
  - If the proposed ruling is favorable, then the taxpayer will be provided with a draft ruling which it must carefully review, particularly the description of the underlying facts and arrangement to which the ruling will only apply.
  - If the proposed ruling is unfavorable, then the taxpayer may be given an opportunity to make further submissions or modify the application to correct a deficiency in their proposal.
- Issuance and publication of ruling:
  - While not universal, the practice of publishing private rulings in redacted form subsequent to issuance is considered best practice to promote greater transparency and to further support the general objectives of certainty and consistency of the ruling system as a whole.
  - The published content of the ruling is typically edited to remove any content—such as names, description of unique transactions or dealings etc.—which could identify the taxpayer to whom the relevant ruling has been issued.
  - The published ruling should provide a general summary of the transaction or scheme, the conclusion (with reasons) as to the application of the tax law to that transaction or scheme, and the period over which the ruling applies.

### Scope
- Advance tax ruling systems can be designed so that a ruling can be issued with respect to any issue involved in the application of the tax law, including issues relating to liability, administration and ultimate conclusions of fact.
- Examples of jurisdictional differences:
  - Australia’s private rulings system allows private rulings to cover a very broad range of tax related issues, including conclusions of fact (such as tax residency status or whether the taxpayer is carrying on a business) and the application of Australia’s general anti-avoidance rule.
  - South Africa’s advance tax rulings systems has specific exclusions and grounds for refusal, including where the relevant issue is of a factual nature; a ruling application relating to the application of any general or specific anti-avoidance provision may also be rejected.
- Circumstances where issuing a ruling would typically be appropriate:
  - There is uncertainty with respect to the tax position of the taxpayer which is not readily able to be resolved via existing information/guidance, including rulings;
  - The tax issue is also complex;
  - The tax issue involves a significant amount of tax (either in total quantum, or relative to the taxpayer concerned);
  - The tax issue is sufficiently material that it would be appropriate to provide formal legal certainty in the form of an advance tax ruling; and
  - There is sufficient time to issue the ruling in the context of the particular transaction or dealing. Most advance tax rulings require a minimum of 30 days before being issued. However, it is not unusual for rulings in other jurisdictions to take between 60–90 days to be issued.
- Circumstances where issuing a ruling would typically be inappropriate:
  - The issue is the subject of an audit or objection process, has previously been determined under audit, or relates to a tax assessment that has already been issued;
  - The application or interpretation of the laws of a foreign country;
  - The constitutionality of a tax law;
  - The appropriateness of pricing of goods or services supplied or rendered to a connected person in relation to the applicant or a class member with the view to distinguishing the advance tax ruling from an advance pricing agreement (or APA);
  - The issuance of the ruling would prejudice or unduly restrict the administration of the tax law;
  - It is determined that the application is frivolous or vexatious;
  - The proposed transaction or dealing is speculative and is not under serious contemplation by the taxpayer;
  - The issuance of the ruling would not have any practical consequences (e.g. the application relates to an historic transaction and the amendment period has expired); and
  - The ruling is only capable of being issued if certain assumptions are made (e.g. events or circumstances that cannot reasonably be determined at the time of the ruling, or where the tax treatment for the applicant depends on the tax treatment for other third parties, which have not applied for a ruling themselves).
- Entry strategy for jurisdictions new to ATR systems:
  - Limit the regime to proposed, immediately executable, complex and more significant transactions which are under very serious contemplation by taxpayers.

### Ruling authority
- Typically private tax rulings are issued by a specialized and centralized unit of the tax authority.
- Best practice reasons for centralization:
  - Achieves consistency with respect to the application of the tax laws between rulings and enhances oversight over the practice in general.
  - Ensures quality control, consistency and oversight, and supports internal information sharing within the tax authority, in particular with the audit services, of rulings issued to, as well as ruling applications withdrawn, by taxpayers.
- Jurisdictional notes:
  - In South Africa, a binding ruling may only be issued by the Legal and Policy Division: Advance Tax Rulings Unit at the SARS Head Office.
  - In Canada advance rulings are issued by the Rulings Office, a centralized CRA headquarters’ office.
  - Sweden is a notable exception where private rulings are issued by a body independent from the tax administration.

### Binding force and precedential effect
- A private tax ruling constitutes legally binding advice which a taxpayer may seek from the tax authority and typically binds the tax authority such that the taxpayer will ordinarily be protected from additional tax, penalties and interest when relying on the ruling issued.14
- The binding nature of the ruling ordinarily may endure, even in circumstances where the advice which was the subject of that ruling is subsequently held (e.g. by a court) to be an incorrect application of the relevant tax law.15
- The tax authority should be able to withdraw a ruling where reasonable cause exists to do so (e.g. there has been a mistake identified in the interpretation or application of the tax law, including where a ruling has been issued in a manner which is inconsistent with a county’s existing international legal obligations such as those embodied in existing tax treaties).
- The benefit of a private tax ruling is personal to the taxpayer to whom the ruling is issued; other taxpayers cannot derive legal rights from it.
- Reasons for confining benefits to the recipient:
  - Limits systemic revenue risk if an incorrect tax ruling is issued or published.
  - Limits the risk of the private ruling being inappropriately applied as a tax conclusion of more general application, given rulings often depend on particular—and often unique—facts.
- Precedential effects and transparency:
  - Private rulings—even unpublished—have some precedential effect because they will inevitably become known to taxpayers typically through the tax advisory community.
  - Best practice suggests private rulings should be disclosed in appropriately sanitized form and exchanged internationally with such an exchange being supported by an accommodative legal framework.16

### Subject to administrative and/or judicial review
- It must be determined whether the tax authority’s ruling decision should be subject to administrative and/or judicial review.
- It would be appropriate not to make the decision reviewable in circumstances where the ruling is binding on the tax authority but not the taxpayer, because the taxpayer can still appeal the assessment made in accordance with an adverse ruling if the taxpayer proceeds with the transaction despite the adverse ruling.

### Cost-recovery fee structures
- Divergent international practices exist with respect to charging a time-based fee for advance tax rulings.
- Arguments against fees:
  - A fee-based structure could undermine neutrality and independence.
  - High relative cost may undermine equal access, particularly for taxpayers with limited resources.
  - Fees used to limit demand may restrict legitimate engagement between taxpayers and the tax administration under a self-assessment system.
  - Some jurisdictions do not charge a fee or any time-based charge (e.g. the Netherlands, Australia, Belgium).
- Arguments in favor of cost-recovery fees:
  - May overcome initial implementation difficulties (e.g. resource reallocation or diversion issues) and limit surplus initial demand.
  - A ruling delivers material value to the taxpayer and the value of certainty likely far outweighs the cost under a cost recovery system.
  - The tax administration will generally require a team of highly qualified people to maintain quality and consistency; recovering costs from beneficiaries is appropriate.
  - Without fees, resources may be diverted from other tax administration functions.
  - Consider charging a higher cost-recovery fee for more urgent and expedited rulings.

### Publication of rulings
- Publishing and reporting private rulings (even in redacted form) subsequent to issuance is considered best practice to promote greater transparency and legislative oversight, and to support certainty and consistency of the ruling system.
- The tax authority should publish an annual report on the issue of advance tax rulings by reporting:
  - the total number of rulings granted and an estimate of their revenue impact;
  - the number of rejected advance tax ruling applications.
- Rationale for reporting:
  - Provides parliamentary oversight or national audit office the basis to debate the regime and guarantees legislative supervision.
- Risks of non-publication:
  - Confidential advance tax rulings not published can lead to “private law making” outside the normal legislative process, creating a hidden source of tax law that runs counter to the rule of law.
  - Private tax rulings should not be used to short circuit legislative policy ratification or to obscure a country’s international commitments in tax policy and administration.
- International exchange:
  - To address transparency and base erosion concerns, published/sanitized domestic rulings should also be exchanged internationally with an accommodative legal framework.18

### Exchange of rulings
- Strong arguments favor exchanging rulings between jurisdictions because private tax rulings issued by one jurisdiction can have an adverse revenue impact on other jurisdictions (e.g. preferential rulings enabling profit shifting).
- Effectiveness requires an accommodative legal framework broad enough to encompass rulings that give rise to cross-border concerns.
- Recent international initiatives:
  - OECD’s work in the Forum on Harmful Tax Practices and Action 5 of the OECD/G20 BEPS Project focuses on compulsory spontaneous exchange of information on six categories of rulings (preferential regimes; unilateral APAs or other cross-border unilateral rulings in respect of transfer pricing; cross-border rulings providing for a downward adjustment of taxable profits; permanent establishment (PE) rulings; related party conduit rulings; and any other type of ruling agreed by the Forum on Harmful Tax Practices that in the absence of spontaneous information exchange gives rise to BEPS concerns).20
  - EU initiative via the Commission’s Tax Transparency Package and Council Directive (EU) 2015/2376 introduces a framework for automatic exchange of advance cross-border rulings and advance pricing agreements between EU member states and the European Commission from January 1, 2017 onwards.21
- Differences in scope and mechanism between OECD and EU initiatives are appropriate given differing contexts; OECD focuses on rulings pertaining to preferential tax regimes and arrangements impacting other countries and adopts mandatory spontaneous exchange, while the EU includes all intra-EU cross-border tax rulings and adopts automatic exchange coordinated through the EU Commission.22

*Prepared by: Christophe Waerzeggers and Cory Hillier*

### APPENDIX A

### _tltn1602 - APPENDIX A

### Selected features of the revenue ruling system
- Multiple jurisdictions set specific time limits, extension provisions, and fees for private rulings; examples cited:
  - Australia: Where the taxpayer’s request raises particularly complex matters that will take more than 28 days to resolve after receiving all the required information, an extended reply date is negotiated.
  - Austria: From 2011 only private rulings on group taxation, business restructuring or transfer pricing are binding on the revenue body and fees will be charged.
  - Canada:
    - Income Tax – within 90 business days of receipt of all essential information from the client;
    - GST/HST – within 45 working days of receipt in the CRA. This excludes highly technical and precedent and/or policy-setting GST/HST rulings and interpretations.
    - Only private rulings on income tax matters are subject to a fee.
  - Estonia: With provision to extend by 30 days.
  - Greece: Private rulings only apply as regards to Advance Pricing Agreements (APAs).
  - India: Central Board of Direct Taxes issues Circulars, which are in the nature of public guidance; Tax administration does not give private rulings. There is the institution of the Authority of Advance Rulings which the taxpayers may approach for a ruling on specific facts applicable to their case.
  - Israel: Fees are required only for rulings on mergers and acquisitions.
  - Latvia: 1 month is norm but may be extended for objective reasons up to 4 months, subject to notification of this to applicant.
  - Italy: Rulings are binding only on the Revenue Agency.
  - Lithuania: 60 days is norm but further 60 days may be added where additional examination required.
  - Luxembourg: Direct taxes only.
  - Malaysia: Fees are charged only for Advanced Private Rulings.
  - Portugal: 150 days is norm but can be 90 days if a request to justify its urgency is made by the taxpayer and accepted by the tax administration.
  - Singapore: 8 weeks for income tax and 4 weeks for GST; expedited rulings can be made for an additional fee.
  - Slovak Republic:
    - There is no general period within which the revenue body (SFA) is obliged to issue a private ruling following a taxpayer’s request.
    - The SFA will issue (on the basis of the written request of the taxpayer) the binding statements (defined by the Tax Procedure Code) to the tax regulations application from 1 September 2014.
    - In such cases, the issuing period is to be defined 60 days from the day of the written request delivery (max. 6 calendar months – after consultation with the taxpayer).
    - Required fee is 1% (at minimum EUR 4 000), 2% (at minimum EUR 5 000) or 3% (at minimum EUR 6 000) of the assumed business case value.
    - These binding statements are binding for the revenue body and the second-instance (appellate) authority.
  - South Africa: Depends on complexity of ruling.
- Additional country-specific notes (as given):
  - Portugal, Slovak Republic, Singapore, Malaysia and others show variations by tax type or offer expedited processes for additional fees.
  - Several jurisdictions specify that private rulings are binding on the revenue body only in limited circumstances (examples include Austria, Italy, Slovak Republic).
  - Some countries apply explicit time limits (examples: Canada 90 business days; Estonia extendable by 30 days; Lithuania 60 days plus 60 days; Portugal 150 days or 90 days if urgency accepted; Singapore 8 weeks/4 weeks).
  - India: the distinction that Circulars are public guidance and the Authority of Advance Rulings exists is emphasized.

### Sample legislative provisions for an advance ruling regime (Appendix B)
- General remarks:
  - The sample provisions are simplified and general; they are intended to establish an advance ruling regime framework and do not account for individual tax systems or detailed procedures.
  - The overarching legal framework supports the power of the tax authority to issue rulings and codify key features; detailed procedural rules may be in regulations or guidance notes.

- Chapter I — Private Rulings: Articles and key provisions
  - Article 1. Binding Private Rulings
    - A taxpayer may apply to the tax authority for a private ruling regarding application of a tax law to a proposed transaction.
    - An application must be in writing and:
      - include full details of the transaction together with all documents relevant to the transaction;
      - specify precisely the question on which the ruling is required; and
      - give a full statement setting out the opinion of the applicant as to the application of the relevant tax law to the transaction.
    - Subject to Article 2, the tax authority shall, within 60 days of receipt of the application under this Article, issue a private ruling on the question to the applicant.
    - If the taxpayer has made a full and true disclosure and the transaction proceeds materially as described, the private ruling is binding on the tax authority as against the taxpayer identified but is not binding on the tax authority as against any other taxpayer.
    - A private ruling is not binding on a taxpayer.
  - Article 2. Refusing an Application for a Private Ruling
    - The tax authority may refuse an application if any of the following applies:
      - the tax authority has already decided the question in a notice of tax assessment, a notice or other guidance in force, or a ruling published under Article 5 that is in force;
      - the application relates to a question that is the subject of a tax audit in relation to the applicant or an objection lodged by the applicant;
      - the application is frivolous or vexatious;
      - the transaction has not been carried out and there are reasonable grounds to believe it will not be carried out;
      - the applicant has not provided sufficient information to make a private ruling;
      - in the opinion of the tax authority, it would be unreasonable to comply having regard to the resources needed and other relevant matters;
      - the making of the ruling involves the application of a tax avoidance provision.
    - The tax authority must serve the applicant with a written notice of refusal.
  - Article 3. Making a Private Ruling
    - The tax authority makes a private ruling by serving written notice on the recipient.
    - The tax authority may make a private ruling on the basis of assumptions about a future event or other matters as considered appropriate.
    - A private ruling must state that it is a private ruling, set out the question ruled on, and identify:
      - the taxpayer;
      - the tax law relevant to the private ruling;
      - the tax period to which the ruling applies;
      - the transaction to which the ruling relates;
      - any assumptions on which the ruling is based.
    - A private ruling is made when the applicant is served with written notice and remains in force until withdrawn under Article 4.
    - A private ruling sets out the tax authority’s opinion on the question raised and is not a decision that can be formally reviewed, appealed or otherwise objected to for the purposes of this law or any other law; this does not limit taxpayer rights with respect to any tax assessment to which the ruling relates.
  - Article 4. Withdrawal of a Private Ruling
    - The tax authority may, for reasonable cause, withdraw a private ruling, in whole or part, by written notice served on the applicant.
    - When legislation is passed that is inconsistent with an existing private ruling, the private public ruling is treated as withdrawn to the extent of the inconsistency.
    - The withdrawal has effect from:
      - when paragraph (1) applies, the date specified in the notice of withdrawal; or
      - when paragraph (2) applies, from the date of application of the inconsistent legislation.
    - A private ruling that has been withdrawn:
      - continues to apply to a transaction of the applicant commenced before the ruling was withdrawn; and
      - does not apply to a transaction of the applicant commenced after the ruling was withdrawn to the extent the ruling is withdrawn.
  - Article 5. Publication of Private Rulings
    - The tax authority must publish a ruling made under Article 4 in the Gazette except that the identity of the applicant must not be indicated.
    - When a ruling has been withdrawn in accordance with Article 4, the tax authority must immediately publish a notice of withdrawal in the Gazette stating that the ruling ceases to be binding with effect from the date determined under Article 4(3).

*Source: OECD (2015), Tax Administration 2015: Comparative Information on OECD and Other Advanced and Emerging Economies, OECD Publishing, Paris.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/tltn/2016/_tltn1602.pdf_