SARS published a discussion paper in 2003 on a proposal to introduce a system of advance tax rulings, in line with best practice elsewhere in the world. Research had shown three models to be in use:

  • a non-statutory approach, in terms of which the tax authorities provide rulings on request and consider themselves bound by these;
  • a statutory approach, in terms of which the authorities issue rulings on how the tax laws apply to a particular arrangement or transaction;
  • a variation of the statutory model, where an independent authority issues binding rulings in response to requests by taxpayers or the tax authorities.

Basis of SA model

The selected model for South Africa was one with a statutory basis. This has come to fruition with the recent insertion into the Income Tax Act, 1962 ("the Act") of Part 1A, consisting of sections 76B to 76S. Part 1A will also apply to the fiscal Acts governing transfer duty, stamp duty, value-added tax and uncertificated securities tax. The Customs and Excise Act already has a system of classification by SARS.

Types of rulings

Section 76B defines four different types of ruling:

1. Binding class rulings

2. Binding general rulings

3. Binding private rulings

4. Non-binding private opinions

The first three of these fall within the definition of "advance tax ruling", which is a written statement issued by C:SARS regarding the interpretation or application of the Act.


One of the criticisms of the discussion paper was that it proposed that advance rulings would or might not be given on certain sections of the Act, some of these being: the "independent contractor" provisions in the Fourth Schedule; transfer pricing; capital/revenue matters; and anti-avoidance provisions. Despite the fact that section 76D provides that C:SARS may make advance rulings on any provision of the Act, most of these limitations remain. Some of the exclusions are understandable, but others, for example situations involving the anti-avoidance sections of the Act, are to be regretted. Capital/revenue matters appear to have been removed from the proscribed list.

Minimum information required

Regardless of the kind of ruling sought, certain information will be required in all instances.

  • Name, address, and tax and contact numbers.
  • A complete description of the proposed transaction and its effect on the tax liability of the applicant or any connected person, including any and all relevant information regarding the financial or tax implications.
  • A complete description of any transaction entered into before the application and any that may be undertaken after it.
  • The ruling being sought.
  • The relevant statutory provisions or issues.
  • The reasons why the applicant thinks the ruling should be granted.
  • A statement of the applicant’s interpretation of the relevant statutory provisions or issues, as well as an analysis of any relevant legal authorities, whether or not these support the applicant’s contentions.
  • A statement that, to the best of the knowledge of the applicant, the same or a similar issue on which the ruling is being sought is not the subject of an audit, examination, investigation, ruling application, objection and appeal, or other proceeding currently before C:SARS or the courts involving the applicant or a connected person.

  • If the ruling sought is a binding private or binding class one, a draft version of the ruling to be issued.
  • A description of the information that the applicant believes should be deleted from the final ruling before publication in order to protect the applicant’s confidentiality.
  • For a binding class ruling, a description of the class members and the impact on the members and any connected persons.


For binding private and class rulings, C:SARS will prescribe application and cost recovery fees. C:SARS will also provide an estimate of the cost recovery fee on request, and inform the applicant at any stage when it appears that this will be insufficient. The apparent reason for this fee structure is twofold: to discourage frivolous and other inappropriate requests; and to defray the costs to the system, so that the general body of taxpayers will not pay for the rulings.

Exclusions, refusals and rejections

Applications that C:SARS is not permitted to accept

1. The first such category is when the application requests or requires a ruling on:

  • the market value of an asset
  • the application or interpretation of the laws of another country
  • the pricing of goods or services to a connected person
  • the constitutionality of any tax law
  • a proposed transaction that is either hypothetical or not seriously contemplated.

Two examples that come to mind are capital gains tax valuations and transfer pricing. Paragraph 29 of the Eighth Schedule to the Act entitles C:SARS to challenge any valuation, while section 31(2) gives similar powers in relation to transfer pricing. These powers of discretion held by C:SARS :may not be vitiated or circumvented by obtaining rulings.

It is unfortunate that SARS will not be forthcoming in giving comfort where connected persons are seeking to ensure that they are pricing transactions between themselves at an acceptable level. Unacceptably high or low prices can have serious effects in such areas as transfer pricing, donations tax, trading stock and capital gains tax. Sometimes two of these implications can apply at the same time, with serious results for the taxpayer.

2. The second such category is when the application relates to the duty of an employer to determine whether a person is an independent contractor, labour broker, or personal service company or trust.

This exclusion is equally regretable. At the same time that it has made it difficult in many circumstances for a person to decide whether or not a person is an independent contractor or an employee in terms of the Fourth Schedule, SARS will apply a punitive attitude towards taxpayers who interpret the provisions incorrectly. It is sometimes extremely difficult to arrive at a firm decision, and the penalties for an incorrect decision are swingeing. SARS itself has, by implication, acknowledged the difficulty by issuing Interpretation Note 17, the very length and complexity of which illustrates the extent of the problem. SARS thus maintains a regime where taxpayers, in sheer self-defence, err on the conservative side and deduct employees’ tax when in fact they need not do so. The only beneficiary in such circumstances is SARS, which enjoys an enhanced cash flow. Interpretation Note 17 states that SARS will not give rulings about such relationships, and this uncompromising attitude, which flies in the face of SARS’ own "charter" of taxpayer rights, has been perpetuated in the new legislation.

3. When the application is submitted for academic purposes

4. When the application presents, contains or raises:

  • a frivolous or vexatious issue;
  • alternative courses of action by the applicant;

  • an issue that is the same as or substantially similar to one presently under audit, examination, investigation or other proceedings involving the applicant; or one that is the subject of pending legislation; or is pending before the courts.

Applications that C:SARS may reject

1. Where an application relates to the application or interpretation of any general or specific anti-avoidance provision

2. Where the application relates to an issue:

  • of an inherently factual nature;
  • in respect of which material facts cannot be established at the time;
  • the resolution of which depends upon uncertain future events;
  • that would more properly be dealt with under a double tax treaty;
  • that is substantially the same as one in respect of which the recipient has already received a ruling;
  • in which the tax treatment depends on the treatment of another party to the transaction and that party has not sought a ruling;
  • in respect of a transaction that is part of another, the details of which have not been disclosed

Effect of rulings

Binding rulings

For a ruling to be binding on C:SARS the actual facts and circumstances, and the period provided for in the ruling, as well as the relevant provisions of the Act, must be the same as those in the application. Any assumptions and conditions imposed by C:SARS in making the ruling must also be present.

Both taxpayer and C:SARS may cite a general ruling in proceedings between them or in court.

A binding private ruling is binding on C:SARS and the applicant only in proceedings between them or in court.

Similarly, any binding class ruling is appropriately limited in scope to C:SARS and members of the class.

Nonbinding rulings

C:SARS may issue a nonbinding private opinion regarding the tax treatment of a particular set of facts and circumstances or a particular transaction.

Needless to say, such a ruling has no binding effect and may not be cited in proceedings.

Where an opinion has been granted in the past, C:SARS may prescribe the extent, if any, to which it is binding in terms of this legislation.

Fraud, misrepresentation or material non-disclosure

A ruling is rendered void ab initio where there has been fraud, misrepresentation or material non-disclosure in the application, and where the actual transaction differs from that described to C:SARS in the application. This would also apply if any assumption made or condition imposed by C:SARS was not satisfied or carried out.

Subsequent changes in the law

Changes to any sections of the Act on which a ruling was based will immediately invalidate the ruling. This also applies where a court overturns or modifies an interpretation on which a ruling is based.

Withdrawal or modification

C:SARS may withdraw or modify a ruling at any time, provided this decision is published and provided, in the case of a binding private or class ruling, C:SARS gives the applicant notice and affords an opportunity to state any proposition of law or fact relevant to the decision.

The effective date of withdrawal may not be earlier than the date of the withdrawal notice. It may, however, be retrospectively withdrawn if:

  • the applicant has not yet commenced the transaction; or
  • someone will suffer more of a significant tax disadvantage if the ruling is not withdrawn than the applicant will suffer if it is withdrawn; or
  • the effect of the ruling will materially erode the tax base and it is in the public interest to withdraw it retrospectively.

A general ruling applies from the date of that ruling unless otherwise stated. In certain circumstances C:SARS may issue a ruling that provides, for example, supplementary information, elaborations of tax law or policy and is retrospective.

Publication and confidentiality

The applicant must consent to the ruling being published. Binding private and class rulings must be published for general information in a form that does not reveal the identity of the applicants or class members. This apparent contradiction is explained by a provision to the effect that the applicant may suggest comments, edits and deletions to ensure confidentiality. However, C:SARS has the last word in this regard.

The applicant for a binding class ruling may consent to the inclusion of information identifying it or the transaction in order to facilitate communication with class members. This would presumably be attractive to investment managers selling a product that depends for its success on a certain tax treatment.

Binding general rulings

These will be issued in regard to the interpretation of the Act or the application or interpretation of the Act in respect of a particular set of facts and circumstances or transaction.

They will be initiated by and binding on C:SARS but not on taxpayers.

They may be effective for a particular period or indefinitely, and must state the provisions of the Act to which they relate.

Binding private rulings

These will be written rulings issued to a taxpayer in relation to a specific transaction or course of action still to be implemented by the taxpayer.

C:SARS may make such assumptions and impose such conditions as may be prescribed in the ruling.

C:SARS must afford an opportunity for consultations with the applicant if it appears that the ruling will differ materially from that sought by the applicant.

Binding class rulings

These will be written rulings issued to a taxpayer in relation to a specific transaction or course of action still to be implemented by the taxpayer.

C:SARS may make such assumptions and impose such conditions as may be prescribed in the ruling.

C:SARS must afford an opportunity for consultations with the applicant if it appears that the ruling will differ materially from that sought by the applicant.

The applicant will be responsible for communicating all details of the ruling to the members of the class, as well as withdrawals and modifications.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.