Advance tax rulings – mandatory exclusion list updated
26 March 2013
Posted by: Herman van Dyk
By Andrew Lewis (DLA Cliffe Dekker Hofmeyr Tax Alert)
TAA provides a list of scenarios where SARS may reject an advance tax
ruling application. A list of additional considerdations where an
application may be rejected was gazetted on 8 February 2013. An
application involving one of these considerations may result in the
taxpayer forfeiting the application fee.
Administration Act, No 28 of 2011 (TAA) provides a list of scenarios where the
Commissioner may reject an application for an advance tax ruling.
Despite the wording of the legislation providing that the Commissioner
'may' reject an application in the particular scenarios, it appears from the
South African Revenue Service (SARS) Comprehensive Guide to Advance Tax Rulings
that the Commissioner is unlikely to exercise his discretion and consider an
application falling within these particular circumstances.
A list of
additional considerations in respect of which the Commissioner may reject an
application for an advance tax ruling was gazetted on 8 February 2013. The list
provides an interesting insight into the type of transactions that SARS and/or
do not have a definitive view on the relevant issues or are concerned it may be
subject to abuse by taxpayers (bearing in mind that advance tax rulings may
only be relied upon by the applicant concerned). Some of the interesting issues
in respect of which taxpayers cannot obtain an advance tax ruling include:
The deductibility of expenditure
relating to the taking over of liabilities or of provisions on the acquisition
of a business.
The qualifying allowance, contemplated
in s24C of the Income Tax Act, No 58 of 1962, in respect of future expenditure,
that the Commissioner may determine.
The validity of the treatment of
amounts as ‘salary sacrifices’ for remuneration purposes.
Any exercise of the Commissioner’s
discretion under s58(1) of the Income Tax Act, concerning the adequacy of
consideration given for the disposal of property; and
Applications concerning the
attribution, allocation or apportionment of expenditure or input tax (from an
income tax or value-added tax perspective), excluding a request for an
alternative apportionment method in terms of s41B of the Value-Added Tax Act,
No 89 of 1991.
The advance tax ruling division has
previously provided rulings on some of these issues such as Binding Private
Ruling (BPR) 095: Adequate consideration as contemplated under s58, BPR 106:
Application of s24C to a maintenance trust, BPR 006: Application of s24C in the
context of a repair and maintenance contract and Binding Class Ruling 029:
Deductibility of contingent liabilities. In addition, the question of whether
the seller is entitled to a deduction of expenditure relating to the taking
over of liabilities or of provisions on the acquisition of a business has been
considered by the courts (see Ackermans Ltd v Commissioner for South African
Revenue Service (2010 (1) SA (1) SCA) and draft legislation was proposed by
National Treasury at one point to specifically deal with this issue. Notably,
the draft legislation was never enacted.
As mentioned above,
the non-rulings list provides an interesting insight into the type of
transactions that are currently subject to debate. One should also be mindful
that before submitting an application for an advance tax ruling application,
taxpayers should ensure that the proposed transaction does not fall within this
list or one of the other precluded transactions set out in s80 of the TAA. If
it does, an applicant will forfeit the applicable application fee.