Ad­vance rul­ing sys­tem bogs down in com­mit­tees

Finweek English Edition - - Advertising & Marketing -

MANY TAX PRAC­TI­TION­ERS have stopped us­ing the SA Rev­enue Ser­vice’s ad­vance tax rul­ing sys­tem be­cause it’s too slow, rigid and pub­lish­ing rul­ings of lim­ited value to tax­pay­ers. The sys­tem was in­tro­duced sev­eral years ago to give cer­tainty to com­pa­nies in re­la­tion to tax treat­ment of trans­ac­tions. Prior to that, com­pa­nies could in­for­mally dis­cuss a trans­ac­tion with Rev­enue, but any view could be changed later and would not be bind­ing on ei­ther Rev­enue or the tax courts.

The new sys­tem is a highly rules-based process, whereby Rev­enue gives a for­mal and bind­ing rul­ing. The prob­lem is the rules are ap­plied so pedan­ti­cally that tax­pay­ers can’t even ap­ply on the ba­sis they’d like to and there are too many ex­clu­sions, re­sult­ing in Rev­enue not be­ing will­ing (or able) to pro­vide a rul­ing. Con­se­quently, many rul­ings have been found to be so nar­row as to be of lim­ited value.

Gary Vo­gel­man, a tax di­rec­tor at Ed­ward Nathan Son­nen­bergs, says all the rul­ings so far, pub­lished are so ba­sic that any prac­ti­tioner could have guessed at that out­come any­way. “So few of them are of any real in­ter­est or com­plex­ity. I’m not sure if the pub­lished rul­ings are be­ing used by the pro­fes­sion or tax­pay­ers to any great de­gree,” Vo­gel­man says.

Con­sid­er­ing the value of those rul­ings, it’s an ex­pen­sive route for a com­pany to take. The tax­payer’s own tax prac­ti­tioner has to write up the whole trans­ac­tion, to­gether with his opin­ion – a process du­pli­cated at Rev­enue, with the com­pany be­ing charged ac­cord­ingly. “The costs of both the prac­ti­tioner and Rev­enue can be sub­stan­tial,” says Vo­gel­man.

“The so­lu­tion is for us to re­vert to the ear­li­est so­lu­tion: to not in­ter­act with Rev­enue but rather come to our own con­clu­sion, pos­si­bly with se­nior coun­sel, and trust the courts will agree if ever asked to ad­ju­di­cate on the mat­ter.

“It’s un­for­tu­nate, be­cause tax laws have changed so much over the past decade and there are very few judg­ments or in­ter­pre­ta­tions to guide you – and that’s not good in a tax sys­tem. What would have been ideal for the tax pro­fes­sion is to have a se­ries of ad­vance rul­ings from Rev­enue on com­plex is­sues. Per­haps they’ll come if prac­ti­tion­ers gain faith in the sys­tem,” says Vo­gel­man.

One rea­son for the dearth of ad­vance rul­ings may be the pace at which tax laws them­selves change. Vo­gel­man says be­cause of many other reg­u­la­tions a trans­ac­tion has to com­ply with, it can take six to 24 months to reach fi­nal­i­sa­tion and the tax law might have changed dur­ing that time – more than once.

Says Vo­gel­man: “If SA wants to cre­ate a more cer­tain tax sys­tem – which is nec­es­sary for in­vest­ment – then this has to be re­solved. In my view this un­der­util­i­sa­tion of the ad­vance rul­ing sys­tem is caused by prac­ti­tion­ers’ per­cep­tion of scep­ti­cism on the part of Rev­enue as to cor­po­rate tax moral­ity. Rev­enue doesn’t like par­ties to a trans­ac­tion to ap­ply rules in a way that favours the tax­payer. And in my view Rev­enue is likely to shoot down a trans­ac­tion if tax ben­e­fits are ev­i­dent.”

Werks­mans tax di­rec­tor Ernest Mazan­sky says he has “mixed ex­pe­ri­ence” of ap­ply­ing for ad­vanced rul­ings. “In gen­eral the peo­ple in­volved are ex­tremely help­ful and nice to work with. I’ve had some good ex­pe­ri­ences and quick turn­around times. On the other hand I’ve also had a lot of frus­tra­tion in most cases.”

The dif­fi­culty ap­pears to lie in Rev­enue’s fear of mak­ing a mis­take it will there­after be obliged to hon­our. De­ci­sions there­fore get bogged down in in­ter­minable com­mit­tees. Says Mazan­sky: “There tends to be overkill on the checks and bal­ances they em­ploy. Th­ese are of­ten com­plex is­sues and the in­volve­ment of too many peo­ple in the de­ci­sion-mak­ing makes it even more com­plex. How­ever, it’s still a rel­a­tively new struc­ture and Rev­enue is get­ting to grips with some is­sues.

A “mixed” ex­pe­ri­ence. Ernest Mazanksy

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