NZ Government Consults On Binding Tax Ruling Law Changes

by Mary Swire, Tax-News.com, Hong Kong

03 August 2009

The New Zealand government on Friday announced the publication of an issues paper on proposed changes to the law surrounding binding tax rulings, which are issued by the Inland Revenue on formal request by a taxpayer, and set out how the tax authority will apply the tax laws to a particular business arrangement.

The current rules have been in place since 1992, following a recommendation by the 1989–90 Tax Simplification Consultative Committee, and a number of technical concerns over the legislation governing binding rulings have been raised in the intervening years, leading the government to suggest several ways the law might be improved to make it easier to apply.

Among the changes proposed in the document unveiled by Revenue Minister Peter Dunne (and prepared by officials from the Policy Advice Division of Inland Revenue and from the Treasury) are:

• Replacing the general prohibition on the Inland Revenue being asked to determine “questions of fact” (ie whether the facts provided by the applicant are correct) with a limited list of factual matters, so that taxpayers are aware of what the Commissioner of Inland Revenue cannot issue a ruling on;
• Introducing a more flexible fee-waiver provision which applies to fees charged when applying for a binding ruling (as a reponse, according to the issues paper, to concerns that "the current waiver provision does not provide sufficient direction over the circumstances in which binding rulings fees should be waived"); and
• Extending the ability to request a ruling to promoters of mass-marketed and publicly promoted schemes, to remove an "unnecessary restriction" on who can request a ruling for such schemes.

Among the other matters additionally addressed by the issues paper were concerns raised with regard to Regulation 7 of the Tax Administration (Binding Rulings) Regulations 1995, under which the fees charged for binding rulings are inclusive of any goods and services tax.

The paper observed that:

"The fees assume a GST rate of 12.5% and do not take into account the fact that binding rulings issued to non-residents outside New Zealand may be zero-rated under the Goods and Services Tax Act 1985. Therefore, any binding ruling issued to a New Zealand resident is in effect cheaper than if that same ruling were supplied to a non-resident. This is because the New Zealand resident, if registered for GST, can generally claim an input tax credit for the GST cost of acquiring the binding ruling. The non-resident, on the other hand, is unlikely to meet the requirements for registration or input tax credit entitlement."

"We recommend amending the Tax Administration (Binding Rulings) Regulations 1995 to allow fees for binding rulings supplied to overseas non-residents to be reduced by 1/9th if the supply is zero-rated. This would bring the regulations in line with existing GST policy."

Various considerations relating to the interaction between the binding rulings and court processes were also examined.

“The changes outlined in the paper are based on technical concerns with the legislation that have been raised by taxpayers. The suggested solutions are a pragmatic approach to ensure that the rules work as they were originally intended,” Mr Dunne explained.

The closing date for submissions from interested parties on The Binding Rulings System: Legislative Issues, is August 28, 2009.

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