Advanced Tax Ruling System can be of significant value

In a previous article I dealt with the introduction of the advance tax ruling system. This system has now been in operation for some time with regard to binding private rulings and, from more recently, for binding class rulings.

The above categories of rulings can be applied for through SARS’ eFiling facility on its website, on completion of a registration process. The first step with regard to an application is a pre-screening procedure designed to ensure that the ruling sought is one that falls within the scope of the legislation – there are certain issues on which rulings will not be issued. The latter issues are set out in the Income Tax Act and in a “no-rulings” list issued by SARS.

A fixed fee is then paid, dependent upon the type of taxpayer and the class of ruling sought. This is followed by submission of the detailed information supporting the application (the requirements in this regard are exhaustive). SARS will then estimate its cost recovery fee. The applicant must accept this estimate, pay a deposit in respect thereof and sign an engagement letter. The application will then be considered and, if all is in order, issued in draft. There is then the opportunity to comment on the draft before the final ruling is issued, against payment of SARS’ final invoice.

There are also binding general rulings that may be issued by SARS of its own accord. It is proposed that a fourth type of ruling, binding product rulings, will be introduced in due course.

SARS has so far published 15 binding private rulings on its website. There are not yet any published binding class rulings, although some have been granted. The published binding private rulings relate most to income tax issues, followed by VAT and then employees’ tax and capital gains tax. The published rulings are edited to remove the applicants’ names and any other identifying information. Although rulings are published they cannot be relied upon by taxpayers other than the relevant applicants when dealing with SARS.

The advance tax ruling system has the potential to be of significant value to taxpayers, by providing increased certainty as to the tax implications of proposed transactions. The list of issues upon which rulings will not be issued is, however, quite extensive. The ruling process does also take some time and a transaction cannot be concluded until the ruling is issued.

By Tim Desmond, Director (pictured above right)- Tax and Commercial Departments
Garlicke & Bousfield Inc.