Do you have a complex transaction, and don’t know which way SARS will go? Ask them upfront!
Many entities enter into complex transactions where the tax issues are not cut and dried, but the risk of SARS ruling against them is too great.
The good news is that since October 2006, there has been a mechanism for you to apply to SARS for a ruling before the transaction is entered into. These rulings are known as Advanced Tax Rulings (ATRs) and allow you to have certainty from a tax point of view before you go ahead with the particular transaction.
Previously, reliance on a ruling issued by a SARS branch office was problematic, since such rulings could be withdrawn at any time and would not hold much weight in legal proceedings. Under the ATR system, you can apply for a ruling that is binding both on the taxpayer and on SARS.
ATR applications must be submitted electronically via the SARS E-filing website (www.sarsefiling.co.za). An initial application fee of R2,500 for SMMEs or R14,000 for other taxpayers is payable on submission.
There is also a cost recovery fee which depends upon the complexity of the proposed transaction, as well as the issues raised in the application.
These fees are not refundable should the taxpayer either decides not to go ahead with the application, or if SARS rules against the taxpayer. You should, therefore, only apply for an ATR if the underlying issue is complex and involves fairly substantial amounts of tax.
There are two types of ATRs, namely a ‘binding private ruling’ (BPR) and a ‘binding general ruling’ (BGR). The former is a bilateral agreement resulting from an application, which will bind the applicant and SARS only, while the latter is issued by the SARS Commissioner and is binding between SARS and all taxpayers.
There are certain areas of tax law that are excluded from the ATR process. For example, SARS will not issue an ADR in respect of the market value of an asset, the application or interpretation of a foreign law, the pricing of goods or services supplied by (or rendered to) connected persons, or the constitutionality of any tax law.
In addition, transactions that are hypothetical or not seriously contemplated at the time the application is filed, or enquiries purely for academic purposes, will not be entertained. Frivolous or vexations applications will also not be considered.
Also excluded are issues that are the same as or substantially similar to issues that are currently before SARS in connection with an audit, examination, investigation or other proceeding involving the applicant or a connected person in relation to the applicant, are the subject of draft legislation, or are pending before the courts.
You may also not apply for an “advance ruling” on a transaction that has already been completed. It seems obvious, but some will no doubt take a chance in this regard.
You need to ensure that the application is filed at least 30 days before the date of the proposed transaction, or any other date or deadline requested or specified by you, whichever date is the earlier.
If the Commissioner intends to issue a negative specific ruling in response to your application, you will be notified and given a reasonable opportunity to either consult with the Commissioner regarding the proposed decision or request that no ruling be issued (an “amendment to discontinue”). In this case, you need to be prepared to take your chances with the courts.
If you withdraw your application in this manner, you will still be liable to SARS for the work done on the application. Any fees already paid will not be refunded, and any outstanding amounts for fees incurred up to the point that the amendment to discontinue is filed, must be paid.
In terms of Section 76O(2), SARS is required to publish private binding rulings for general information. The identity of the applicants or any parties mentioned in the ruling letters will, however, be kept confidential.
A taxpayer who is not party to this application will not be entitled to rely on a private binding ruling published in this manner, since each case needs to be determined on its own merits.
Using the ATR process can provide taxpayers with a valuable mechanism with which to ensure tax compliancy and limit tax risks. However, like in all matters relating to tax, make sure that you submit your application timeously, ensure that you have your documentation available, and that all relevant facts are disclosed.
WRITTEN BY Steven Jones
Steven Jones is a retired tax practitioner and member of the South African Institute of Professional Accountants.
While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.
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