15 July 2011

Administrative changes to Advance Tax Ruling process

During June 2011, a few notable communications were made by the Advance Tax Ruling (ATR) unit of the South African Revenue Service (SARS), which include an update of the no-rulings list and additional pre-acceptance tests.

The additional pre-acceptance tests under section 76G of the Income Tax Act No. 58 of 1962 (the Act) were promulgated on 2 November 2010 and essentially requires an ATR applicant to be a taxpayer in good standing by ensuring that all necessary registrations, returns and payments are up to date. Verification of registration is not required where the ATR application relates to whether a registration under any act administered by the Commissioner is in fact required. Binding Class Ruling applications, where the applicants are less than 10, would also need to comply with the additional pre-acceptance tests, unless other arrangements acceptable to the Commissioner have been made.

Section 76G of the Act contains a number of items upon which the application for an ATR may be rejected or refused which include, inter alia, a determination on the market value of an asset, the application of foreign laws, transfer pricing or constitutional issues relating to tax law. Section 76G(3) of the Act specifically empowers the Commissioner to publish an additional list of issues in respect of which applications may be rejected or refused, the latest of which was published on 29 June 2011. The addition to the previous no-rulings list of 23 February 2009 relates to whether interest is deductible under sections 11(a) or 24J(2) of the Act where debt is used to finance the acquisition of shares for the purpose of acquiring the underlying assets or business of another company.

One final aspect to consider is the request for additional information in SARS' email communication of 15 June 2011 to various ATR applicants. In the email, SARS states that in the event that any views have been obtained on the subject matter of the ruling request, for example senior council opinion, these must be forwarded as part of the application. Taxpayers that correctly claim legal professional privilege may find themselves in a catch 22 position as the Commissioner is given the discretion under section 76G(4) of the Act to reject an application in the event that an applicant fails or refuses to provide additional information as requested.

Ruaan van Eeden

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