South Africa's Income Tax Act is almost 50 years old and has
been amended countless times to keep it abreast of developments in
modern commerce. Inevitably, it has become enormously complex, at
times creating uncertainty for the taxpayer. This has led to
discussions at high levels about a complete re-write of South
Africa's Income Tax Act. While clearer legislation will be
welcomed by all, it is inevitable that there will always be those
areas of tax law that are subject to different interpretations. For
those cases where there is uncertainty relief may be available in
the form of an advance tax ruling from the Commissioner.
The Advance Tax Ruling System was introduced in 2006 and its
express purpose is "to promote clarity, consistency, and
certainty regarding the interpretation and application of the
Act". The Act allows the Commissioner to make binding general
rulings, while a taxpayer may apply for private and class rulings
in respect of the application of any of the provisions of the
Where an Advance Tax Ruling applies to a taxpayer it is binding
on the Commissioner, in that the Commissioner must then interpret
or apply the Act in accordance with the ruling, subject to any
conditions or assumptions as set out in the ruling. However, only
the taxpayer to which the ruling applies can rely on it. Other
taxpayers, even those party to a transaction similar to those
described in a published ruling, cannot rely on that ruling. Such a
ruling can, of course, provide valuable guidance to the
Commissioner's approach to that sort of transaction.
It is important to note that the Commissioner does not have the
authority to make law and rulings themselves are not law. What
rulings do is bind the Commissioner to a particular interpretation
on an issue. As an example, where the Commissioner publishes a
binding general ruling that applies on the facts to a particular
taxpayer and that taxpayer disagrees with the Commissioner's
interpretation as set out in the ruling, the taxpayer is not bound
to follow the ruling. In terms of the Act a binding general ruling
may be cited by the Commissioner in any proceedings before the
Courts but this does not imply that the Courts are in any way
required to follow the ruling. The process is much the same in
other jurisdictions such as Australia (being one jurisdiction upon
which our advance tax ruling system is based) where public rulings
are not law and bind only the Australian Commissioner.
Prior to the introduction of Advance Tax Rulings, taxpayers
could refer to various Interpretation Notes and Practice Notes
issued by the Commissioner in order to try and ascertain the
Commissioners' stance on a particular section of the Act. These
Notes however, were not binding in any form on the Commissioner and
so, although they gave the taxpayer some form of guidance as to the
probable treatment of a transaction by the Commissioner, they do
not have the same weight as an Advance Tax Ruling.
It is not only the Income Tax Act that makes provision for
official rulings. The Vat Act provides for the Commissioner to
issue binding Vat rulings and a recent bill proposes amending the
Mineral and Petroleum Resources Royalty (Administration) Act so as
to allow the Commissioner to issue nonbinding private opinions on
the tax treatment of a particular set of facts. As the name
indicates, however,these opinions would not be binding on the
Commissioner and would therefore be more akin to an Interpretation
or Practice Note rather than an Advance Tax Ruling.
To date the Commissioner has published forty two binding private
rulings, four binding class rulings and three VAT binding general
rulings, probably a lot less than initially expected. However, as
the benefits of the Advance Tax Ruling system become more apparent
to taxpayers the number of rulings is expected to increase.
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.
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