Tax Advisers - Deloitte

South Africa
New advance tax ruling
system promotes certainty
Michael Honiball
KPMG
Johannesburg
South Africa has a relatively sophisticated residence-based tax
system. It incorporates many best-practice tax principles from
other jurisdictions, and many aspects of the system are unique.
Some provisions, like the CFC rules, are also extremely
complex. Due to the relative complexity of the legislation and
a backlog of court cases, there are many areas of uncertainty
for taxpayers. There also appears to be a trend by the courts to
move from a traditional, literal interpretation of statutes, to a
more purposive interpretation, creating further uncertainty.
Until now, South African Revenue Service (SARS) rulings
were difficult to obtain and generally were not binding. An
exception was certain VAT Rulings, which were regarded as
effectively being of a binding nature. Practice and
Interpretation Notes issued by the Service were also not
binding, and in some court cases the Service even argued against their own Practice
Notes when it suited them!
The implementation of the new advance tax ruling system, backdated to October 1
2006, was therefore generally welcomed by South African advisers and taxpayers. The
previous system of non-binding rulings essentially remains as before, except that
certain VAT Rulings previously issued change their status from January 1 2007, from
binding rulings to so-called opinions.
The implementation of the new ATR system follows international best practice. For
example, Australia and New Zealand already have such a system, and on November 17
2006, the UK HMRC published a report on large-company tax administration that
included a recommendation to introduce a system of advance rulings for businesses by
the end of 2007.
The rationale behind the UK recommendations, as was the case in South Africa, is the
need for more certainty about the tax treatment of company transactions as well as the
speedier resolution of taxpayer issues. The argument is that if a binding ruling has
been obtained, an assessment can more quickly be issued and need not be questioned
by a tax authority before the expiry of the relevant prescription period.
Key features of the new ATR system
The Commissioner for the South African Revenue Service can issue two types of
rulings under the new ATR system: Binding Private Rulings and Binding General
Rulings.
A Binding Private Ruling is an advance tax ruling, issued in response to an application,
that states how the commissioner would interpret and apply provisions of South
African tax law to a specific proposed transaction. A Binding General Ruling is an
advance tax ruling that is issued by the commissioner, at his discretion, regarding the
application or interpretation of a provision of South African tax law in respect of issues
or matters of general interest or importance. The latter ruling is not issued in response
to any application. Both types of rulings are binding on the commissioner, but not on
the taxpayer. Furthermore, the binding effect of a Binding Private Ruling only applies
to the applicant who requested the ruling, and may not be cited as precedent by any
other taxpayer.
A Binding Private Ruling may be rendered void or lose its binding effect if the facts
stated in the application are materially different from the transaction actually
implemented, if there is fraud or misrepresentation or if any condition stipulated on
the Ruling is not satisfied. Furthermore, if there is a subsequent change in the relevant
tax law, or if the commissioner withdraws the ruling, it will cease to apply.
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