Private rulings in other countries

A.4.1 Many other countries' tax administrations offer private rulings to taxpayers. Of 46 tax administrations surveyed by the OECD, 36 provide binding private rulings to taxpayers. Submissions to this review highlighted two jurisdictions of note.

New Zealand

A.4.2 Taxpayers may apply to the Inland Revenue for a private binding ruling on proposed, current, and completed arrangements. The Inland Revenue must follow a binding ruling when assessing a taxpayer's tax liability where a binding ruling applies to a particular taxpayer.

A.4.3 A draft ruling must be included in the ruling application. The ruling applicant must set out fully any propositions of law that relate to the issues raised in the application, including the legal reasoning and appropriate case law (including possible contrary arguments) that support the interpretation of the legislative provisions adopted in the draft ruling. An application may be withdrawn in writing at any time, for any reason, before a ruling is issued.

A.4.4 Before the Inland Revenue issues a private ruling, it consults with the applicants. If it is in general agreement with the application, it will send the applicant a draft ruling for comment. If it does not agree, it will send the applicant a letter setting out its initial views and its reasoning and offering the opportunity for further arguments or submissions to be made. The Inland Revenue charges an hourly rate on a cost-recovery basis when considering an application.

A.4.5 Binding rulings are not disputable decisions that can be challenged through the dispute resolution process. This is because a taxpayer who disagrees with a ruling is not obliged to apply it.

A.4.6 The Adjudication and Rulings area of the Inland Revenue gives private binding rulings. The Inland Revenue maintains a strict structural separation between this area and its Policy Advice Division40 (New Zealand's equivalent to Australia's Treasury in relation to tax policy matters) and compliance functions. There is, however, open communication between the three areas. The rulings area will obtain input from the compliance and policy areas. Rulings are also not delayed because of resolution of discussions with the policy advice area. When the timeframes for these rulings are compared with those for the Tax Office's large complex rulings, they are similar.

Table 6: Comparison between Tax Office and Inland Revenue of time taken to complete interpretive advice in the 2004 income year
  New Zealand Australia(b)
  Technical issues contained in applications
for private and product binding rulings,
accrual determinations and taxpayer-specific depreciation
determinations and technical correspondence
All PBRs PBRs requiring
precedential
Tax Office review
Total number of cases 659 253 59
% finalised within 30 days 63(a) 15 8
% finalised within 60 days 75(a) 32 25
% finalised within 90 days 90(a) 49 39

(a) Note: Time taken to deliver draft private and product binding rulings and draft taxpayer-specific statutory determinations from the receipt of any additional information necessary and the applicant accepting the cost estimate: Annual Report 2004, pp. 98-99.

(b) Note: Times calculated from date of applications. 255 PBRs in total (ave time 204 days), 59 precedential (ave = 243 days), 3 mth = 128 cases (50 per cent), precedential 24 cases (40 per cent), 6mth = 180 cases (70 per cent), precedential 37 cases (62 per cent), 9 mth = 207 cases (81%), precedential 44 cases (75 per cent).

Table 7: Comparison between Tax Office and Inland Revenue of time taken to complete interpretive advice in the 2005 income year

  New Zealand(a) Australia(b)(c)
  Technical issues contained in applications
for private and product binding rulings,
accrual determinations and taxpayer-specific depreciation
determinations and technical correspondence
All PBRs PBRs requiring
precedential
Tax Office review
Total number of cases 491 270 64
% finalised within 30 days 61(a) 23 5
% finalised within 60 days 84(a) 43 19
% finalised within 90 days 100(a) 58 38

(a) Note: Time taken to deliver draft private and product binding rulings and draft taxpayer-specific statutory determinations from the receipt of any additional information necessary and the applicant accepting the cost estimate: Annual Report 2005, p 74.

(b) Note: Times calculated from date of receiving applications until date of finalisation.

(c) Note: Figures do not include 36 cases outstanding as at 30 June 2005 (average = 112 days; 2 cases over a year old), including 9 cases requiring a precedential Tax Office view (average = 233 days, 2 cases over a year old).

A.4.7 The New Zealand system of tax policy development involves an open consultative process on legislative change. The policy advice to the New Zealand Government on proposed tax laws is publicly available. This is undertaken under the Generic Tax Policy Process.

The Generic Tax Policy Process is a significant improvement in the process of policy development and tax reform. Major tax initiatives are now subject to much greater public scrutiny at all stages of their development. As a result, we now have the opportunity to develop more practical options for reform by drawing on information provided by the private sector and the people who will be affected. The process also gives us greater opportunity to explain to interested parties the rationale underlying proposed reforms, thus improving their long-term sustainability.41

A.4.8 Tax bills may be scrutinised by New Zealand's Parliamentary Committees. The Inland Revenue will respond to all submissions made to Parliamentary Committees' inquiries of tax bills through an 'official's report'. That report will disclose the policy advice given to Government on issues raised in submissions. It also provides greater clarity around the Government's reasons for specific proposed legislative provisions.42

A.4.9 The Inland Revenue also advises the Government of the potential revenue implications separately from the rulings process.

A.4.10 According to the peak tax professional organisation in New Zealand, the Inland Revenue provides fair and impartial rulings 'without fear or favour'.

Sweden

A.4.11 In Sweden private binding rulings are given by a tax law commission (the Council for Advance Tax Rulings) independent of the revenue collection agency (the National Tax Board). As a result of criticisms that the revenue collector was not objective and independent, from 1991 rulings have been issued by the Council. The Council acts as a national tax court and is part of the Swedish court system. It comprises around 25 members and deputies who are all Government appointees.

A.4.12 Taxpayers and the National Tax Board can request an advance tax ruling. Rulings can be generally sought on almost all tax matters, but only on questions of law. The Council does not rule on questions of fact or provide tax planning advice. The National Tax Board can use the advance rulings system to develop legal precedents on tax matters.

A.4.13 The applicant must pay the fees for the ruling. Costs, however, can be reduced if the ruling involves questions of great public importance. There are no costs for rulings on indirect taxation.

A.4.14 The application process is adversarial in nature. The National Tax Board and taxpayers act as counterparties. Proceedings are normally conducted in writing, but there is provision for oral evidence. Comments on each party's statements are obtained. The average ruling takes 6 to 8 months.

A.4.15 Rulings may be appealed to the Supreme Administrative Court (the highest Court with jurisdiction to hear tax cases). However, there is no right of appeal if the application is dismissed. There is no formal publication of rulings.

A.4.16 The Council's rulings are binding only when the taxpayer chooses to apply the ruling.

A.4.17 The Council has an outstanding reputation for the quality of its decisions.43 However, it has been criticised for the time taken.


40 Inland Revenue's Policy Advice Division works together with the Treasury to advise the New Zealand Government on all aspects of tax policy and social policy measures that interact with the tax system: Annual Report, 2004, p 20.

41 Inland Revenue, 'The policy development process', available at www.taxpolicy.ird.govt.nz; see also, Inland Revenue, Briefing for the Incoming Minister of Revenue — 2005, pp 13-14.

42 See for example, 'Officials' Report to the Finance and Expenditure Committee on Submissions on the Taxation (Annual Rates, Savings Investment, and Miscellaneous Provisions) Bill', available at www.taxpolicy.ird.govt.nz.

43 Fransberg, E, The Swedish advance ruling regime, Wintercourse 2002, Stockholm School of Economics, p 23.