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Sawyer, Adrian --- "Binding rulings in New Zealand. An assessment of the first ten years" [2006] CanterLawRw 10; (2006) 12 Canterbury Law Review 273


Adrian Sawyer[*]

I. Introduction

On 1 April 1995, binding rulings on taxation laws became a reality in New Zealand. Ten years on the binding rulings regime has undergone remedial legislative reform, although no comprehensive overhaul has been undertaken (debate continues over whether such reform is necessary). The legislative scheme reflects largely the theoretical ideal for a formally binding regime (with a few exceptions, such as, in my view, the lack of an appeal facility) and in this sense can be used as a benchmark for comparing other regimes internationally.[1] In practice, the New Zealand binding rulings regime has some significant shortcomings, which in part has seen the regime become a victim of its own success, a result of a severe shortage of resources, including experienced revenue personnel.

In this article I commence in section II with a brief background to the development of the binding rulings regime in New Zealand, and follow this in section III with a discussion on the purposes of the regime. A brief overview of the key features of the regime follows in section IV. Section V considers aspects of the interpretation and scope of the regime, and the legal status of rulings. In section VI, I review the performance of the Adjudication and Rulings Group using criteria from the Inland Revenue Department's (‘IRD') Annual Reports. Section VII offers some concluding observations.

II. Background to New Zealand's Binding Rulings Regime - A Cautious Start

Binding rulings were first introduced into New Zealand's taxation legislation in April 1995 as Part VA of the Tax Administration Act 1994 ('TAA1994').[2] Binding rulings are a new concept for taxation law and practice in New Zealand, but follow strong precedent from other jurisdictions, including Australia and Sweden. Variations in the legislative framework prevail throughout rulings regimes internationally. Countries such as Canada, Germany, the Netherlands and the United States have retained an administrative rulings system.[3] Prior to the enactment of the binding rulings regime in New Zealand, the United Kingdom rulings procedure was closely analogous to the New Zealand administrative system.[4]

An early call for a binding rulings regime emerged in 1986,[5] although momentum was not evident until 1990 when the Tax Simplification Consultative Committee ('Waugh Committee') recommended that there be a binding rulings regime.[6] The Waugh Committee's proposals were for a revenue neutral regime, since this was a fundamental requirement of the Waugh Committee's terms of reference. The Government's reaction was to direct that Treasury and IRD officials undertake a study of implementing a change in the law to create a rulings regime that was binding on the Commissioner of Inland Revenue ('the Commissioner'). The initial reaction to the concept from the IRD was negative, with the Commissioner stating that a binding rulings regime was not appropriate and it would create two laws.[7] Other reasons for the unenthusiastic reaction were the necessary significant review of internal administrative procedures and the lack of resources to operate an effective binding rulings regime. The Government's response to the calls for a binding rulings system was an announcement in the 1992 Budget[8] that it was its intention to introduce a binding rulings regime to deal with the uncertainty created by the possibility of a change in view of the Commissioner.

Within this environment, tax was recognised by the Government as a critical component of the business operating environment and integral to the structuring and execution of business arrangements. Despite these political overtures, a formal proposal did not emerge until 7 June 1994, when a discussion document[9] on the proposed regime was introduced for public examination as part of the Generic Tax Policy Process.[10] The document proposed that the Commissioner be able to issue rulings on the interpretation of taxation law which bind the Commissioner on the future application of that law.

Submissions were invited from interested parties and were received from fifteen groups and individuals. Support for the concept was overwhelming, although changes were recommended. Following consideration of the submissions, draft legislation was introduced to Parliament in December 1994 as part of the Taxation Reform (Binding Rulings and Other Matters) Bill 1994.[11] Submissions were received by the Finance and Expenditure Committee (‘FEC’) and returned to Parliament as recommended changes to the TAA 1994.[12] Royal assent was received on 10 April 1995, with the

regime effective from 1 April 1995. The resulting legislation initially at least was modelled on aspects of the earlier Australian binding rulings regime introduced in 1992.

III. Purpose of Binding Rulings

The introduction of the statutory regime was to give effect to a 1992 Budget announcement of the Government's intention that a binding rulings system on tax matters would be set in place. The purpose of the statutory framework for binding rulings is setoutin s 91A. Specifically, s 91Aprovides two major and two minor (yet associated) purposes. Binding rulings are intended to provide taxpayers with certainty about the way that the Commissioner will apply taxation laws. In the discussion document which initially outlined the Government's proposals, two categories of certainty were identified: transaction certainty[13] and compliance certainty.[14] Transaction certainty was described as the form of business certainty that arises when taxpayers know in advance the tax treatment of their proposed transactions. Compliance certainty is the reassurance given to taxpayers that the arrangement will not be subject to a higher tax liability provided the terms of the arrangement are not different to that contemplated by the ruling.

The second major purpose behind introducing binding rulings was to assist taxpayers in meeting their obligations under the law. An example of the effective implementation of this purpose was evident following enactment of the proposals in the discussion document on taxpayer compliance, standards and penalties.[15] Under the proposals, a taxpayer who relied on an applicable binding ruling would have an absolute defence against any penalty for an 'unacceptable interpretation' .[16] However, this was not carried through to the Taxpayer Compliance, Penalties and Disputes Resolution Bill 1995 and the ensuing legislation.[17] However, there is a good argument that if a taxpayer relies on a valid and applicable binding ruling then this should be regarded as taking an acceptable interpretation, since this interpretation was 'acceptable' to the Commissioner. Section 91A also makes reference to the regime recognising the importance of collecting the taxes imposed by Parliament and the need for full and accurate disclosure by taxpayers who seek to obtain binding rulings. As a consequence of the certainty afforded to taxpayers through the availability of binding rulings, strict disclosure requirements will be imposed upon taxpayers.

Two subsidiary benefits were identified by the Government in the discussion document:[18] reduced litigation (resulting in lower administrative costs[19] and compliance costs,[20] as well as improved relations between the IRD and taxpayers), and improved and faster flows of information to the IRD concerning trends in taxpayer behaviour and 'grey' areas in the law.

IV. Overview of Key Features (Scheme) of the Regime

The Commissioner is able to issue four types of binding rulings: public rulings, private rulings, product rulings, and, from 20 May 1999, status rulings on the application of a change in the law on an existing private ruling or product ruling. In the process of making a private ruling or a product ruling, the Commissioner has the discretion to make assumptions and impose conditions. For resource reasons, private rulings were initially limited to specific arrangements entered into after the issue of the ruling by the Commissioner. From 1 April 1996[21] the regime was extended to enable the Commissioner to provide private rulings on current and completed arrangements.[22] Taxpayers or their agents, who apply for a private ruling, product ruling, or status ruling, are required to comply with strict application and disclosure requirements and a failure to comply will lead to non-application of the ruling. There is a statutory right for the applicant to consult with the Commissioner prior to the issue of a private ruling, product ruling, or status ruling if the content of the proposed ruling differs from that requested by the applicant.

The Commissioner will be bound to assess taxpayers in accordance with the position taken in an applicable public ruling, private ruling, product ruling, or status ruling, all within the constraints of any assumptions and conditions. Taxpayers, however, will not be bound by a ruling, but until 20 May 1999, applicants were required to disclose in their returns that they have applied for a private ruling and whether or not they followed it.[23]

They were also obliged, until 20 May 1999, to disclose any material difference between the arrangement described in the private ruling, and the actual arrangement.

All rulings will apply to the arrangements entered into for the period for which the ruling is issued, although the period for which the ruling has application may be extended where the original ruling was either a public ruling, or a product ruling, until 20 May 1999.[24] Public rulings since 17 October 2002 may be made for an indefinite period.[25] The Commissioner is able to withdraw a ruling or a ruling may cease to have effect, following a change in a taxation law. Withdrawals may not be retrospective in effect and the withdrawal cannot apply before notification of the withdrawal has been provided to the applicant. A withdrawal cannot be effective before the expiry of the period for which the ruling applies if the arrangement has been entered into before the withdrawal.[26] Tax law changes, however, may cause retrospective cancellation of the application of a ruling. Status rulings are a new type of ruling that appeared with the enactment of the Taxation (Accrual Rules and Other Remedial Matters) Act 1999. The Commissioner may issue a status ruling upon application concerning whether an amendment or repeal of a taxation law, that is stated as applying in the private ruling or product ruling, has changed the way that the law applies in that ruling.[27]

All public rulings and many product rulings are published in full in the IRD's Tax Information Bulletins ('TIBs').[28] Thus while many product rulings are published in full in the TIBs, others are just noted in the New Zealand Gazette.[29] Private rulings are not published, but where the content of a private ruling raises an issue of wider significance to taxpayers generally, the Commissioner may decide to issue a public ruling reflecting the approach taken in that private ruling.[30] Status rulings on aproductruling are notified in the Gazette and generally published within two months of notifying the applicant.[31] Private rulings, product rulings and status rulings[32] are charged for on what is loosely termed a 'full cost-recovery' basis, which for the purposes of the regime until 25 August 1999, implies a non-refundable application fee of $210 (including GST), an hourly rate thereafter of $105 (including GST) and reimbursement of certain fees and disbursements.[33] From 26 August 1999, the fees increase to a non-refundable application fee of $310 (including GST), an hourly rate thereafter of $155 (including GST) and reimbursement of certain fees and disbursements.[34] The Commissioner must provide an estimate of the fees payable in excess of the application fee and must advise the taxpayer of the likely date for issue of the ruling if this is expected to be longer than 4 weeks after receipt of a complete application. The Commissioner may waive all or part of the fees payable by the applicant.

The process of obtaining a binding private ruling, product ruling or status ruling can be illustrated as follows:[35]

V. A Legal Evaluation of the Regime

Interpretation and Scope of Binding Rulings

Part VA provides the scope or ambit of the binding rulings regime. A binding ruling is defined as either a public ruling made under s 91D, a private ruling made under s 91E, a product ruling made under s 91F, or a status ruling made under s 91GA.[36]

Further limits on the scope of the binding rulings regime are implied by the definitions contained in s 91B, where several key terms are defined. For example, the definition of discretion, provided by s 91B, is largely based on the equivalent definition under the Australian binding rulings legislation.[37] The definition of taxation law in s 91B includes within its meaning the exercise of a discretion by the Commissioner and not merely provisions which require or authorise the Commissioner to exercise a discretion. This means that the term taxation law extends to certain actions of the Commissioner.

The definition of taxation law is stated to mean a provision specified in s 91C(1) in respect of which the Commissioner may make a binding ruling. A question has been raised as to what level of specificity the term 'a provision' is to be applied. In the Commissioner's view, a provision 'is any operative section, subsection, paragraph or subparagraph (as the case may be) of the relevant Act' .[38]

Specifically, s 91C provides the statutory boundaries for the regime. The Commissioner may make rulings on how taxation laws apply to arrangements, subject to statutory exceptions. Essentially an arrangement means 'any contract, agreement, plan or understanding (whether enforceable or unenforceable), including all steps and transactions by which it is carried into effect.'[39] The definition has been stated in a broad manner with the intention of ensuring that there are no unnecessary fetters on the scope of the Commissioner's ability to make a ruling and that a wide variety of undertakings may be ruled on.

The term arrangement, as defined, enables informal but seriously contemplated proposals and complex written contracts to fall within the scope of the term. The equivalent term in Australia is more specific in the list of items that are included in the definition of arrangement, although the Australian definition does not specifically refer to the steps involved in carrying it into effect.[40]

As to the definition of 'arrangement', there is no specific definition of arrangement in the TAA 1994, either within the binding rulings provisions or generally. Section 3(2) incorporates the definition in s OB 1 of the ITA 2004, but only 'unless the context otherwise requires'. The Commissioner has stated[41] that he considers this definition is incorporated. Any doubt is now removed by the enactment of s 3(3) of the Tax Administration Amendment Act (No 2) 1996. There may be situations where a binding ruling is desired, for example, as to whether an organisation is a 'non-profit body' for GST purposes, but a ruling cannot be obtained unless the application can be framed in terms of some form of 'arrangement'. Whether an organisation is a 'non-profit body' would be a question of fact which cannot be ruled upon.

The IRD's then General Manager of Adjudications and Rulings stated that:

[W]e must acknowledge that many of our problems in providing applicants with the rulings they want - or sometimes any ruling at all - stem from the concept and implications of an 'arrangement'.[42]

There are several practical issues involved with the definition of an arrangement. The first is that the definition includes all steps and transactions by which an arrangement is carried into effect. Therefore, an arrangement can be identified for the purposes of a binding ruling without the need to identify a completed transaction.[43] Second, the Commissioner does not consider the question of a taxpayer's tax status is an arrangement, but that it may be part of a wider arrangement, such as the establishment of a company.[44] Third, the Commissioner has accepted that for the purposes of the binding rulings system, there can be single party arrangements, notwithstanding that judicial authority would indicate that an arrangement requires two or more participants.[45]

As a result of the Australian decision in Liftronic Pty Ltd v FCT,[46] in New Zealand if a ruling concerns a matter that is possibly not an arrangement as defined, but the Commissioner and the applicant nevertheless proceed on the basis that it is an arrangement, then it may be appropriate for the applicant to obtain a ruling in such circumstances.

The Commissioner may make a binding ruling on any provision[47] (or how the Commissioner will exercise his discretion under any provision)[48] of the following statutes: the Estate and Gift Duties Act 1968 ('EGDA 1968'), the Gaming Duties Act 1971 ('GDA 1971'), the Goods and Services Tax Act 1985 ('GSTA 1985'),[49] the ITA 1994 and ITA 2004[50] and the Stamp and Cheque Duties Act 1971 ('SCDA 1971').[51] In addition, the Commissioner may make a binding ruling in respect of any Order in Council or regulation made under s 225 TAA 1994, the EGDA 1968, the GDA 1971, the GSTA 1985, the ITA 1994, the ITA 2004 and the SCDA 1971.[52] The Commissioner may also make status rulings under s 91GB, as from 20 May 1999, with respect to the effect of a change in the law on existing private rulings and product rulings.[53] Furthermore, the Commissioner is unable to rule on any enactment which is not specifically legislated for, or for any of the following items: any provision that authorises or requires the Commissioner to exercise penal or investigative powers,[54] or prosecute,[55] or recover a debt from any person.[56] The Commissioner may not make a binding ruling on a provision that authorises or requires the Commissioner to inquire into the correctness of any return or other information supplied by any person.[57] Specific constraints on the Commissioner's power to issue either a private ruling,[58] a product ruling,[59] or status ruling[60] are also contained in Part VA. Essentially, in relation to private rulings and product rulings, these restrictions relate to determining questions of fact, the underlying subject matter is subject to objection, appeal, or challenge, a ruling already exists on how the taxation laws apply to the arrangement, or insufficient information has been provided by the applicant. In respect of private rulings, product rulings and status rulings, the restrictions relate to arrangements which are not seriously contemplated (that is, the application is frivolous or vexatious), the correctness would be determinate upon certain assumptions about future events or other matters which the Commissioner considers to be too uncertain, or unreasonable in the light of the Commissioner's available resources. In addition, for private rulings, the Commissioner may notrule if the issue concerns tax which is payable, an assessment has been made in relation to the arrangement or an audit is in process concerning how the taxation law applies to the person, arrangement and period identified in the application.[61] Two further specific constraints on the Commissioner's powers to issue a private ruling or product ruling are that of the exclusion of matters which are or could be dealt with under the mutual agreement procedures in double tax agreements, and that the Commissioner would be required to form an opinion as to generally accepted accounting practice[62] or a commercially acceptable practice.[63]

Amendments to the Regime

One major amendment to Part VA creates an exception to the general rule that the Commissioner may not make a private ruling if the application for the ruling requires the Commissioner to determine questions of fact. An application for a private ruling on a matter involving the operation of the transfer pricing rules will necessarily involve a question of fact but a ruling may nevertheless be sought.[64]

The Committee of Experts on Tax Compliance ('Committee of Experts'), in the course of their review of the New Zealand tax system, reviewed the binding rulings regime.[65] In the Committee of Experts' report, there is an overview of the rulings process, discussion on the quality of private binding rulings, the utility of the binding rulings process, and several recommendations.[66] The Committee of Experts endorsed the current process not to publish private binding rulings, the discretionary nature regarding issuing public binding rulings and product rulings, while expressing some concern over product rulings on passive investment funds. A further amendment to the rulings process was needed following the enacted of the changes to the Core Provisions in Part B ITA 1994. The IRD advised that, following submissions to the FEC on the Taxation (Core Provisions) Bill 1996, regarding the effect on binding rulings of changes in tax laws, it intended to review the approach to be adopted in respect of changes to tax laws which have the effect of terminating binding rulings, but where the new law does not alter the tax treatment of the taxpayer or the arrangement. The FEC report recommended:

that the Bill be amended to provide, in relation to all [private or product] binding rulings issued prior to the enactment of the Bill that are terminated by the Bill, [pursuant to section 91G,] that:

The FEC also noted that the Adjudication and Rulings Group intended to complete the reissue of rulings, or issue of new rulings, before the application of the Taxation (Core Provisions) Act 1996 in the 1997/98 income year. Further amendments to Part VA were enacted in 1999.[68] The Adjudication and Rulings Group had previously prepared a detailed Legislative Review Report describing:

a large number of matters which have arisen as issues or difficulties since the 1 April 1995 commencement of the new regime. Some of these are mechanical issues, while others are matters of policy - some are blindingly obvious as to what needs to be done, but others raise quite complex questions about which the Rulings Unit does not necessarily have a concluded view.[69]

This Legislative Review Report was the outcome of a comprehensive internal review of the practical operation of the binding rulings system. The reason for this review and the resulting report was to identify areas where the legislation was not matching operational expectations. To assist in the process, the Adjudication and Rulings Group invited and considered suggestions from tax practitioners who had experience with some of those areas. This was followed up by submissions on the ensuing draft legislation.[70] The substantial number of binding rulings that have been made[71] (and continuing to be made), points to a level of success in terms of the initial period of operation of the system.[72] However, the large number of issues and difficulties identified by the Adjudication and Ruling Group's review does not indicate a flawed system, but rather a commitment on the part of the IRD to make the binding rulings system work effectively to as high a standard as possible within the resources constraints, an approach to be applauded.

Further remedial changes were made with effect from 17 October 2002 through the Taxation (Relief, Refunds and Miscellaneous Provisions) Act 2002. These amendments provide for public rulings to be issued with an indefinite life (the aim to reduce the work by rulings staff to revisit and reissue existing public rulings every 3 years), to remove the requirement for notification to be in writing for product and status rulings, and correct the reference to 'generally accepted accounting practice' (from 'generally accepted accounting principle'). The most recent changes accompanied the introduction of the ITA 2004, to allow for rulings on provisions within this legislation and to change references from 'income year' to 'tax year'.[73]

The Legal Status of Binding Rulings

Binding rulings issued under Part VA will not amount to de facto legislation or delegated legislation. Binding rulings are the Commissioner's interpretation of the law and not that of a court or Parliament. The intention of creating the regime was to ensure that the constitutional principle that Parliament has the ultimate power over the levying of tax was maintained.[74] Binding rulings will not be afforded the legal status of either regulations or determinations issued under the Revenue Acts.

As a consequence of the constitutional framework in New Zealand, the Commissioner cannot create legislation as this power would restrict Parliament's ability to make law. On the other hand, certainty over the application of taxation laws for taxpayers is fundamental to the regime.[75] Consequently any ruling issued under the regime[76] will be given legislative backing to the extent that the Commissioner will be estopped from subsequently denying that it is a binding ruling, and the Commissioner will be required to assess the taxpayer in accordance with an applicable binding ruling.[77] There is, however, an issue where the Commissioner has purported to make a 'binding ruling' even though it is outside his powers, for example, a private ruling where the arrangement is later found to have been 'entered into' before the ruling application was made on facts different to those in the application. This issue is partially answerable at this point but one that should be given careful consideration by taxpayers who may fall into the position outlined. It is expected that where the facts are materially different, the ruling will not apply; it could also be arguable that the applicant has misled the Commissioner.[78] Since the Commissioner must follow the approach set out in a binding ruling, to that extent it can be said that binding rulings do have the force of law because the taxpayer can rely upon a favourable ruling as if it were the law.[79]

In contrast to the legislative situation in Australia,[80] a private ruling issued by the Commissioner cannot bind the taxpayer; that is, a taxpayer is not required to follow the approach set out in a binding ruling issued by the Commissioner.[81] Instead, until 20 May 1999, the legislation required a taxpayer who has received a binding private ruling to file a return.[82] Where the taxpayer was required to take into account the way in which a taxation law applies to the arrangement identified in the ruling, then that taxpayer had to disclose the existence of the private ruling, whether or not they had relied on the ruling and any material changes to the arrangement identified in the ruling.[83] There are no similar requirements for disclosing the existence of, and whether the taxpayer relied upon, either a public ruling, a private ruling or a status ruling.

A private ruling or product ruling issued[84] before the passing of the Taxation (Core Provisions) Act 1996 may cease to apply on the application of the core provisions because of changes made by this Act. Such a ruling is to be called a 'terminated ruling'. In its consideration of the proposed legislation, the FEC recommended that a special process be established for rulings affected by the changes in the Taxation (Core Provisions) Act. As a result, the Commissioner will:[85]

Taxpayers will not be charged for these rulings and a ruling will be issued on the basis of the taxpayer's or the applicant's original application.[87] This process has since been modified through a change in the role of the Rewrite Advisory Panel, now chaired by Sir Ivor Richardson.[88] In 2004 the Minister of Revenue invited the Rewrite Advisory Panel to take on an additional role to consider potential unintended change issues arising under the Income Tax Act 2004. It was anticipated that such issues may arise from the redrafted and restructured Parts of this Act.

VI. Practical Implementation: The Performance of the Adjudication and Rulings Group Over the First Ten Years

A unit/group was set up in the Head Office of the IRD in Wellington for administering the binding rulings regime. The Adjudication and Rulings Group is primarily responsible for dealing with all applications for binding rulings and issuing rulings, in addition to conducting the adjudication phase of the new dispute resolution process and servicing ministerial questions and requests.[89] Consequently the rulings function is centralised which differs from the non-binding ruling system which required taxpayers to approach their local office for a non-binding advance ruling.[90] A major change was implemented in the 2003-04 income year to improve the deficiencies in existing rulings unit resources and better utilise existing resources, namely the allocation of binding ruling applications to the Corporates Unit for processing where they relate to taxpayer clients serviced by the Corporates Unit. Nevertheless, the majority of rulings applications will continue to be handled by the Rulings Unit.

The Adjudication and Rulings Group consists of approximately 1 percent of the total IRD staff (5,890 as at 30 June 1995, 4762 as at 30 June 2005), with an initial complement in 1995 of approximately thirty staff, a director, three managers and three teams of seven to ten staff. In April 1995, when the unit was set up, it was not intended that there would be any specialisation amongst the teams, but the applicant would be provided with the name of the person who will be responsible for dealing with their request for either a private ruling or a product ruling. At this point in time, the extent of further resources that would be required when the binding rulings facility was extended to allow applications for private rulings on past transactions was unknown. This rulings division of the Adjudication and Rulings Group is also responsible for preparing policy statements (including interpretation statements), statutory determinations (accrual and depreciation) and technical correspondence. By 1998, the unit had grown slightly, with a General Manager, several managers and teams of staff of rulings officers, including accountants and lawyers. This number increased further in 2004, through the addition of three senior tax counsel and a principal advisor. Overall the unit has strived for quality before quantity (that is, achieving targets); an approach that causes frustration for applicants, but which in my view is preferable to striving to achieve budget targets with insufficient resources at the expense of maintaining high quality output. The 1995 Annual Report for the IRD does not provide any useful information on the rulings group since its binding rulings activity had only just commenced; only 8 private binding ruling applications had been received as at 30 June

1995. In the 1996 Annual Report, it is acknowledged that there was a need to revisit the areas for which public binding rulings should be made following consultation and feedback from practitioners. It was also found to take longer than expected to issue a ruling, since the complexity of applications was greater than expected; consequently output targets were not achieved. The budgeted level for private binding rulings was set much higher than the number of applications (1,600 as compared to 133). If the number had been much higher than 133, the Adjudication and Rulings Group would not have been able to cope, given the paucity of staff at this time. The unit also acknowledged that at this early stage in its existence it lacked experience in estimating fees in advance, with only 65 percent coming within 25 percent of the original estimated cost.

In the 1997 Annual Report, the unit reduced its targeted budget number of private rulings to 200 and received 241 applications. It set the number of product rulings to 50 and this was also exceeded (63). This number was exclusive of the reissued rulings following the Taxation (Core Provisions) Act 1996, and is therefore an underestimation of the number of private rulings and product rulings issued. Resources had to be reallocated to private and product rulings as a result of the high demand, meaning a significant reduction in the number of public rulings (budget of 30, but only 11 issued).[91] Determinations and technical correspondence budget figures were also significantly reduced. There is a statement to the effect that the rulings issued were of a high standard and received favourable public comment. With respect to the time to issue a ruling, the unit was closer to achieving its targets, but the delays were caused often by applicants in providing necessary information, as well as the complexity of the applications and protracted discussions with applicants. Further refinement in targets for delivery of rulings was acknowledged due to requests for further information. Costs for rulings were much closer to estimates than in 1996, although the estimates of cost information were acknowledged as not always being delivered in a timely fashion.

In the 1998 Annual Report, the number of private rulings issued by the unit exactly achieved the budget number of 200, while product rulings almost doubled the budget (95 issued against an estimated 50). While 50 public rulings were budgeted for, only 22 were issued, again attributed to diverting staff resources to the large number of private rulings and product ruling applications. It was also stated that the large number of public rulings worked on during the 1998 year will begin to show in the year to 30 June 1999 as a result of the long consultation process on such rulings. Once again, shortages of available ruling analysts caused backlogs leading to delays in getting cost estimates to applicants. In like manner to the 1997 Annual Report, delays in delivery of rulings were again attributed to applicants being required to provide additional information, unexpectedly long delays in responding to these requests, or modifications to the details of the transactions, resulting in protracted discussions. As a result, the unit extended its target dates for delivery and estimates of fees by two weeks. On a positive note, the unit improved its costing information with the actual cost extremely close to the estimated cost when viewed in aggregate.

In the 1999 Annual Report the number of private rulings and product rulings combined issued by the unit (220) fell 12% short of the budgeted figure of 250. While 40 public rulings were budgeted for, only 16 were issued. This shortfall was attributed to the complexity of the subject matter, extensive research and drawn out consultation (and frequent reissue of drafts). However, the comment in the 1998 Annual Report that the large number of public rulings worked on during the 1998 year would begin to show in the year to 30 June 1999, as a result of the long consultation process on such rulings, did not eventuate. Once again, shortages of available ruling analysts caused backlogs leading to delays in getting cost estimates to applicants. In like manner to the 1998 Annual Report, delays in delivery of rulings was again attributed to applicants being required to provide additional information, unexpectedly long delays in responding to these requests, or modifications to the details of the transactions, resulting in protracted discussions. The unit continued to maintain the quality of its costing estimates from 1998 with the actual costs extremely close to the estimated cost when viewed in aggregate.

In the 2000 Annual Report, the number of rulings issued fell again in terms of the previous year and was considerably less than budget (183 against 220 budgeted). Complexity of the issues and arrangements, and degree of research and analysis required, were cited as the major reasons. The standard of output remains high, with the IRD noting that practitioner and commentators generally commended the unit for is professionalism and quality of the technical work. Turnaround time, including allocation to an analyst, remains unacceptably high. In the majority of cases, the cost of providing the ruling exceeded the original estimate, with this situation attributed to increased time required to analyse complex issues. In 2001, according to the Annual Report, the unit focussed on the number of issues per ruling application (including applications involving intricate financing, structuring and cross-border issues), rather than on the number of applications, making comparisons to previous years more difficult. Against an estimate of 1000 issues with an average of 4.5 per application (translating to approximately 220 applications), 1019 issues were obtained across 146 applications (close to 7 issues per application). The focus on issues rather than on applications tends to hide the fact that the number of application dropped significantly on the 2000 year. Eight applications contained 30 issues and one over 50 issues; clearly complexity is increasing if one uses the number of issues per application as a measure. The focus on private and product rulings applications again led to delays with issuing public rulings. It is noted that the process of allocating applications to analysts improved slightly. Timeliness in issuing rulings remained a problem as in previous years, again indicating the shortage of resources.

The 2002 Annual Report results are similar to the 2001 year, with minor improvements in timeliness and accuracy of cost estimates. The 2002 results also reveal a change in budget estimates, using a wide target range of issues, which can reduce the percentage shortfall of the budget output (using the lower end of the budgeted target range). This wide range may also indicate the difficulty the unit has in predicting demand and the associated number of issues.

The 2003 results, as reported in the Annual Report, are similar to 2002, although some of the target outputs were achieved through using once again a wide target range (in my view such a large range seems to be more about improving statistics and reducing the risk of not achieving a target, than being a useful quality performance measure; perhaps this reflects the unachievable targets set previously). The interesting factor for 2003 is the reduction in number of mean issues per application by 1.56 issues per application, although the number of issues dealt with remains well short of the target (520 issues against 800-1200). Timeliness was improving which was a positive outcome.

The 2004 Annual Report, while containing significantly less detail and comment compared to previous years, reads the most favourably for the unit and the IRD generally, for many years. Not only were the failures to meet targets much smaller than in previous years (for example, only 17.6 percent short of the lower end of the target number of issues - 659 to a range of 800-1200 budgeted issues; however, public items were on target -41 as against 30-50 items). However, in many instances the quantity was met (within the broad target range), with timeliness significantly improved, and a dramatic improvement in cost estimates such that the costs is less than or equal to the last estimate agreed to with the applicant (what this does not indicate is how much more the estimate is than the original estimate given and how many revisions there are on average to the original estimate!). Also during this year the Corporates Unit took responsibility for binding rulings from taxpayers that come within its ambit, freeing up resources for the Adjudication and Rulings Group. Much of this improvement is due to a focus on building the capacity of the staff, including recruiting at the entry-level and senior manager level. This includes a new group manager, three senior tax counsel and a principal advisor.

Concern has been expressed by a leading tax expert, John Shewan, over the increasing issue of binding rulings on the general anti-avoidance provision being very heavily qualified with conditions[92] (once the Rulings Unit is 'completely and absolutely satisfied as to the robustness and integrity of all aspects of the commercial purposes underpinning the arrangements'),[93] and the voluminous documents provided by the Rulings Unit in the context of their consideration of rulings requests. In Shewan's view, the hurdle to be traversed before rulings are issued on avoidance is now much higher than five years ago.[94] In an accompanying address, the Commissioner of Inland Revenue defended his department's approach to rulings.[95] The Group Manager for the Corporates Unit advised the Business Roundtable that it has 'bedded down' the binding rulings process within the Corporates Unit, with 16 rulings under action and in the last year to June 2005 it completed 10 rulings.[96] The average time taken to complete the last 10, from the acceptance of the estimate of the IRD's costs to the first draft has been under 80 days at an average cost of around $9,000. On average it takes about 30 days to agree the estimate of costs. Interestingly, and contrary to previous IRD statements, the General Manager for the Corporate Unit advised that currently the Rulings Group has capacity to undertake rulings, with little waiting time before allocation.

In the 2005 Annual Report there is considerable less discussion on the performance of the IRD with respect to taxpayer rulings. A comment is made that the IRD completed 78 taxpayer rulings, comprising 491 technical issues. This was below their forecast (the budget was 700-1100 issues) as a number of draft rulings comprising an additional 238 technical issues were unable to be finalised, due to a delay in receiving input from taxpayers or their advisors. Nevertheless, the IRD claims that it met all quality standards and exceeded timeliness standards (including that of allocation to an analyst), including 100 percent of draft rulings being finalised within a nine-month time frame.

VII. Concluding Observations

A critical reason for operating a binding rulings regime is to increase certainty for taxpayers; indeed this is the key purpose of New Zealand's regime. Achievement of this aims depends significantly upon the attitude taken by the IRD. While the IRD was initially opposed to a binding rulings regime, both the IRD and the Government are now supportive of the process, with the main concern being the under-resourcing of the Adjudication and Rulings Group. The amendments to the regime have largely been remedial and in response to operational and legislative developments since its introduction in 1995, such as the status ruling facility to provide for legislative changes. Furthermore, the reforms strongly suggest that there has been minimal tangible effort applied to considering developments in other jurisdictions, especially that of Australia.

The New Zealand tax system has moved even closer to a formalised self-assessment environment, becoming much closer to the Australian tax system in this regard. Like Australia, the New Zealand tax system is unduly complex, undergoing protracted efforts directed at simplification with limited success. Within its severe resourcing constraints, the New Zealand binding rulings model offers a relatively cost effective and efficient process, evidenced in the high quality and improving timeliness of issuing extremely rulings with a large number of complex issues.

The Australian model continues to offer features with several advantages over its New Zealand counterpart; the appeal or challenge process is notable as a mechanism to address disputes over rulings at an early stage, albeit with mixed success. The misinterpretation and the lack of foresight by the New Zealand Government remains entrenched through a reluctance to revisit its reasoning in determining to withhold this facility from the New Zealand model from the outset.

New Zealand's model remains comprehensible and contains reasonably straightforward procedures for the withdrawal of rulings,[97] and the assistance given by the detailed application requirements which in turn can improve the timeliness of the issue of private rulings, product rulings, and now status rulings. For supporters of removing cross-subsidisation and promoting user pays, the charging process is a positive feature of the New Zealand model, although there is currently minimal scope for recognising ability to pay, and no scope for fast tracking of applications. Partial (and possibly full) waiver of fees is the only facility provided to recognise ability to pay, although there is no publicly available data on the extent to which the discretion to allow waivers has been applied by the IRD. The IRD's consultative approach to date is a positive feature, even if this slows down the process of analysing an application and issuing a ruling. However, frustration remains that the IRD is failing to deliver many rulings within its stated timeframe, due largely to resourcing constraints and the complexity of issues. Notwithstanding the preceding comments, the New Zealand binding rulings model should not be viewed as the ideal approach in all areas, especially with regard to the absence of an appeal or challenge facility for binding rulings. In sum, while the first ten years of the New Zealand model reveal a model that has been successful in generating demand and delivering high quality outputs, the partial 'strangulation' of the process through resourcing constraints and a growing complexity of applications (as measured by the number of complex issues), suggests considerable room for streamlining of the process and further resourcing commitment from the Government. The 2004 and 2005 Annual Reports suggest that efforts to redress these problems are starting to show some fruit.

[*] Associate Professor of Taxation, Department of AFIS, University of Canterbury. An earlier version of this article was published as an essay in Adrian Sawyer (ed), Taxation Issues in the Twenty-First Century (2006) 195.

[1] See, for example, Adrian Sawyer, 'Comparing New Zealand's Private Rulings System and its Features with a Selection of International Private Rulings Systems - What is there in Common?' (2002) 5 Journal of Australian Taxation, 440-65. For a comprehensive analysis, see Adrian Sawyer, An International Comparison of Binding Rulings Regimes, A Report for the Adjudication and Rulings Division of the Inland Revenue Department (2001).

[2] Tax Administration Act 1994, Part VA (ss 91A - 91J). Section 91J was added by s 97(1) Taxation (Accrual Rules and Other Remedial Matters) Act 1999, with effect from 20 May 1999.

[3] See further, Sawyer, above n 2, for a review of the binding rulings regime in 26 countries.

[4] For a further discussion refer to Daniel Sandler, A Request for Rulings (1994).

[5] John Prebble, Advance Rulings on Tax Liability (1986).

[6] Tax Simplification Consultative Committee, Final Report (1990).

[7] Interview with the Commissioner, David Henry, Tax Education Office (TEO) Newsletter, 29 June 1989, as noted in Adrian Sawyer, 'The Potential Liability of the Commissioner for Tax Rulings' (1993) 37 Current Taxation 79, 91. It should be noted that at this stage there was no formal proposal from Government indicating a commitment to introducing a binding rulings regime.

[8] Hon Ruth Richardson, Budget 1992 (1992) 20.

[9] New Zealand Government, Binding Rulings on Taxation: a discussion document on the proposed regime (1994). For a discussion on the proposals see Adrian Sawyer, 'Binding Rulings' (1994) 74 Chartered Accountants' Journal 20. For an excellent overview of the discussion document see TEO Newsletter No. 88 (13 June 1994) 1-12.

[10] Introduced in 1994 as part of the recommendations of the Organisational Review Committee, Organisational Review of the Inland Revenue Department (1994); see also Adrian Sawyer, 'Broadening the Scope of Consultation and Strategic Focus in Tax Policy Formulation: Some Recent Developments' (1996) 2 New Zealand Journal of Taxation Law and Policy 17.

[11] For an excellent discussion and overview of the Taxation Reform (Binding Rulings and Other Matters) Bill 1994, see TEO Newsletter No. 96 (19 December 1994) 1-4 on binding rulings.

[12] For an early discussion on the regime, see Nigel Smith, 'Binding Rulings: A Step Forward?' (1995) 75 Chartered Accountants Journal 29. For a further review of the various rulings regimes from 1992 to 1995, judicial review of the Commissioner's decisions, and the new legislation, see Wayne Mapp, 'Binding Rulings' (1996) 2 New Zealand Journal of Taxation Law and Policy 139. See also Adrian Sawyer, 'Binding Tax Rulings: The New Zealand Experience' (1997) 26 Australian Tax Review 11. For the Commissioner's overview of the regime, see Tax Information Bulletin Vol 7(2) Binding rulings series, (August 1995) 1-3, including a discussion on the rulings directorate, public rulings process and private rulings and product rulings processes.

[13] New Zealand Government, Binding Rulings on Taxation: a discussion document on the proposed regime (1994) [2.6].

[14] Ibid [2.7].

[15] New Zealand Government, Taxpayer compliance standards and penalties 2: a discussion document (1995). The proposals became law on 1 October 1996 when the Taxpayer Compliance, Penalties and Disputes Resolution Bill was enacted into 11 separate Acts.

[16] Ibid [6.11], and see also [6.5] for a definition of this test which essentially means 'about as likely as not to be correct'.

[17] See s 141B TAA 1994 containing the tax shortfall penalty for a taxpayer who takes an unacceptable interpretation in their tax position. This is now referred to as an 'unacceptable tax position' following an amendment to s 141B, although the tests remains 'about as likely as not to be correct'.

[18] New Zealand Government, Binding Rulings on Taxation: a discussion document on the proposed regime (1994) [2.8].

[19] Administrative costs are those costs incurred by the IRD in administering the Revenue Acts, which includes costs incurred in collecting taxes. For further discussion of administrative costs and their measurement, see Cedric Sandford & John Hasseldine, The Compliance Costs of Business Taxes in New Zealand (1992). In a recent study by Colmar Brunton on compliance costs in New Zealand, the 'ATAX definition' of total tax compliance costs was applied, namely: '(Direct monetary outgoings incurred by taxpayers + Imputed costs of time and resources spent by taxpayers) - (Managerial benefits to taxpayers+ Cash flow benefits to taxpayers + Tax deductibility benefits to taxpayers + Cash grants from the government)', per Chris Evans & Binh Tran-Nam, The tax compliance costs of small and medium-sized business (2004) 12. See Colmar Brunton, Measuring the tax compliance costs of small and medium-sized businesses — a benchmark survey - Final Report for the Inland Revenue Department (2005).

[20] Ibid. Compliance costs are costs individuals and organisations incur in meeting the requirements laid on them by tax law, over and above the payment of tax, and over and above any distortion costs inherent in the nature of the tax. For further discussion of compliance costs and their measurement.

[21] An earlier or later date could have been determined by Order in Council, but 1 April 1996 was the date for full utilisation of the regime for private rulings.

[22] For a useful summary of the binding rulings regime, see Quentin Lowcay, 'The Binding Rulings Regime: An Introduction to a Useful Tax Planning Tool, and a Brief Comparison with the Australian Model' (1995) 39 Current Taxation 61. For the Commissioner's overview of the regime, see Tax Information Bulletin Vol 7(2) Binding rulings series (August 1995) 1-3, including a discussion on the rulings directorate, public rulings process and private and product rulings process.

[23] Note that there are no similar disclosure requirements for public rulings or product rulings. This obligation (in s 91J) was repealed by s 88(1) of the Taxation (Accrual Rules and Other Remedial Matters) Act 1999, with effect from 20 May 1999.

[24] The facility for extending product rulings was repealed by the repeal of s 91FI TAA 1994; see s 94(1) Taxation (Accrual Rules and Other Remedial Matters) Act 1999, with effect from 20 May 1999. Note that public rulings may be issued for an in definite period as from 17 October 2002; see TAA 1994, ss 91DA and 99DC TAA 1994; as amended by s 82 Taxation (Relief, Refunds and Miscellaneous Provisions) Act 2002.

[25] See TAA 1994, ss 91 ED(4) and 91ED(4A).

[26] Withdrawal procedures differ for public rulings as from 17 October 2002, see s 91ED(4) and 91ED(4A) TAA 1994, to provide for public rulings with an indefinite period of application, restricting application in the case of withdrawal to 3 years after the date of the notice of withdrawal. Note that for product rulings notice of withdrawal no longer needs to be in writing; see s 91FC(3) TAA 1994, with effect from 1 April 2005. A similar change was made for status rulings; see s 91FJ(6) TAA 1994.

[27] See TAA 1994, s 91GA, introduced by s 97(1) Taxation (Accrual Rules and Other Remedial Matters) Act 1999, with effect from 20 May 1999.

[28] Until 20 May 1999 this process also involved notification in the New Zealand Gazette.

[29] From 20 May 1999, applicants will generally have a period of 2 months from the issue of the ruling until it is published - new s 91FH TAA 1994.

[30] Issue of a public ruling in these circumstances is not specifically provided for in the legislation, but it falls within the discretion granted to the Commissioner to issue a public ruling.

[31] TAA 1999, s 91GG.

[32] This is implied by operation of the amendment to s 91I TAA 1994, as from 20 May 1999 for status rulings.

[33] These fees are GST inclusive; see Tax Administration (Binding Rulings) Regulations 1995, reg 7.

[34] Tax Administration (Binding Rulings) Regulations 1995, reg 7.

[35] Adapted from Inland Revenue Department, Binding Rulings: A guide to rulings that are binding on Inland Revenue (1995) 20. This flowchart is not reproduced in either of the two replacement guides, namely Inland Revenue Department, Adjudication and Rulings A Guide to Binding Rulings (1998); and Inland Revenue Department, Adjudication and Rulings A Guide to Binding Rulings (1999). A similar process is involved for status rulings, although it varies according to whether the status ruling is to be on an existing private ruling or product ruling.

[36] Section 3 TAA 1994 was amended to incorporate the definition for a binding ruling with effect from 1 April 1995. Section 3 was also amended with effect from 20 May 1999 to include the definition for a status ruling.

[37] Tax Administration Act 1953 (Aust), s 14ZAAC. This section also deems the Federal Commissioner of Taxation ('Australian Commissioner') to have exercised a discretion if the Australian Commissioner refuses or fails to do the things specified in the definition of discretion.

[38] Tax Information Bulletin, Vol 7(6), 'Questions we've been asked' (December 1995) 25.

[39] 'Arrangement' is defined in ITA 2004, s OB 1. Note the limitations imposed on this concept by the Court of Appeal in CIR v BNZ Investments Ltd [2001] NZCA 184; (2001) 20 NZTC 17,103 (CA).

[40] Tax Administration Act 1953 (Aust), s 14ZAAA, where an arrangement includes '(a) scheme, plan, action, proposal, course of action, course of conduct, transaction, agreement, understanding, promise or undertaking; or (b) part of an arrangement.'

[41] Tax Information Bulletin Vol 6(12), 'Binding Rulings on Taxation' (May 1995) 2.

[42] See Martin Smith, Commentary on the Binding Rulings Regime: A Practical Critique, (ICANZ National Tax Conference, November 1996), 6. Martin Smith's title is now Chief Tax Counsel.

[43] See Tax Information Bulletin Vol 7(6), 'Questions we've been asked, Tax Administration Act 1994' (December 1995) 31.

[44] See Tax Information Bulletin Vol 7(12), 'Questions we've been asked, Tax Administration Act 1994' (April 1996) 32.

[45] See for example, Hadlee and Sydney Bridge Nominees Ltd v CIR (1989) 11 NZTC 6,155. However, the requirement for the taxpayer to be a party to an arrangement has been questioned; see the Privy Council decision in CIR v Peterson (2005) 22 NZTC 19,098.

[46] 96 ATC 4425.

[47] TAA 1994, s 91C(1).

[48] TAA 1994, s 91C(2). A discretion is defined in s 91B to include the exercising of a power, forming of an opinion or attaining of a state of mind by the Commissioner. This facility is also available under the Australian legislation; see Tax Administration Act 1953 (Aust), s 14ZAAD for public rulings and s 14ZAE for private rulings.

[49] Except for ss 12 and 13, which are deemed to be part of the Customs Act 1966, see TAA 1994, s 91C(1)(c).

[50] A binding ruling may not be made to the extent that the matter in question is or could be the subject of a determination of the Commissioner under: s 90 of the TAA 1994 in relation to a financial arrangement (or a s 90AC determination as from 20 May 1999; s 90A to the extent that a financial arrangement provides funds to the issuer for the purposes of ITA 1994, ss FG 1 to FG 10 (for the 1996-97 and subsequent income years - now ITA 2004, ss FG 1 to FG 10); s 91 TAA 1994 in relation to petroleum mining; ITA 1994, s EF 1(3) (now ITA 2004, s EA 3 and TAA 1994, s 91AAA(1) and (3)) in relation to accrual expenditure; any of ITA 1994, ss EG 4, EG 10, EG 11 and EG 12 (now ITA 2004, s EE 25) and TAA 1994, s 91AD; (now TAA 1994, ss 91AE, 91AF, 91AG, 91AH and ITA 2004, s EE 29); ITA 1994, ss EE 21 - EE 24 and TAA 1994, s 91AJ (now ITA 2004, ss EE 32 and EE 39(1)) in relation to depreciable property; or ITA 1994, ss EL 4 (now ITA 2004, ss EC 9, EC 22, EC 24 ITA and TAA 1994, ss 91AB and 91AC) in relation to specified livestock (from 1 October 1996) or ITA 1994, s EL 9(3) (now ITA 2004, s EC 29) in relation to non- specified livestock (from 23 September 1996).

[51] Stamp duty was abolished as from 20 May 1999, and therefore this provision only applies to stamp duty arising prior to this date as applicable under the Stamp Duty Abolition Act 1999.

[52] This power is limited by TAA 1994, s 91C(1)(f)(i) whereby any provision to the extent that it could be subject of a determination cannot be considered for a binding ruling. The TAA 1994, s 91C(1)(1)(f)(ii), also restricts the power of the Commissioner to make a ruling where regulation 5(1A) of the Income Tax (Withholding Payments) Regulations 1979 or any successor to that regulation are at issue. This regulation is concerned with exemption certificates for non-resident contractors.

[53] Taxation (Accrual Rules and Other Remedial Matters) Act 1999, s 97(1).

[54] TAA 1994, s 91C(3)(a).

[55] TAA 1994, s 91C(3)(c).

[56] TAA 1994, s 91C(3)(d).

[57] TAA 1994, s 91C(3)(b).

[58] TAA 1994, s 91E(4) and (5).

[59] TAA 1994, s 91F(3) and (4).

[60] TAA 1994, s 91GB(2) and (3). The Commissioner is permitted to make a status ruling by the operation of s 91C(1A); see s 76(3) Taxation (Accrual Rules and Other Remedial Matters) Act 1999, with effect from 20 May 1999.

[61] There are similar provisions in the Australian legislation in the Tax Administration Act 1953 (Aust), ss 14ZAN and 14ZAQ. The differences between the two regimes are essentially as follows. There is no express provision that the Australian Commissioner may not make a ruling if this would require him or her to determine questions of fact. Absence of this issue has been resolved through the decision in CTC Resources v FC of T [1994] FCA 947; (1993) 27 ATR 403, where it was held that although the Australian Commissioner has power to make assumptions on factual matters, he should not do so where the taxpayer could provide the information. Also, there is a significant difference between ss 14ZAN and 91E(4) and 91F(4) in that where one of the specified circumstances exists, the Australian Commissioner is 'not required' to make a ruling (ie has a discretion) whereas the (New Zealand) Commissioner 'may not' (ie has the power not to) make a ruling.

[62] From 17 October 2002 this was amended to read 'generally accepted accounting practice'; previously this referred to a 'generally accepted accounting principle' see s 122 Taxation (Relief, Refunds and Miscellaneous Provisions) Act 2002.

[63] TAA 1994, ss 91E(4)(i) and 91F(4)(h).

[64] This restriction was removed by s 3(1) Tax Administration Amendment Act (No 2) 1995. This amendment came into effect with respect to tax on income derived in the 1996-97 income year and subsequent years: see further TAA 1994, s 91E(4A).

[65] Committee of Experts on Tax Compliance, Report to the Treasurer and Minister of Revenue by a Committee of Experts on Tax Compliance (1998).

[66] Ibid ch 17: 'The Rulings Process'.

[67] These recommendations were given legislative effect by the insertion of a clause 2A in the Taxation (Core Provisions) Bill 1996, which was subsequently enacted.

[68] See Taxation (Accrual Rules and Other Remedial Matters) Act 1999, ss 76 to 99 (inclusive).

[69] Martin Smith, Commentary on the Binding Rulings Regime: A Practical Critique, (ICANZ National Tax Conference, November 1996) 6.

[70] Taxation (Accrual Rules and Other Remedial Matters) Bill 1998.

[71] See, for example, the IRD's Annual Report for the years ending 30 June 1996 to 1999, inclusive. Problems have continued since these amendments; see the Annual Reports for the years 2000-2004 inclusive.

[72] For an excellent overview of the first year of operation of the binding rulings regime and practical issues arising (including an example application), set out in a question and answer format, see Tax Education Office Newsletter No. 120 (28 June 1996) 1-20.

[73] See ITA 2004, ss YA 2 and schedule 22.

[74] See Constitution Act 1986, s 22.

[75] TAA 1994, s 91A.

[76] That is, a ruling which is a public ruling with the necessary content as set out in s 91DA of the TAA 1994, a private ruling with the necessary content as set out in s 91EH of that Act, or a product ruling with the necessary content as set out in s 91FH of that Act. From 20 May 1999, this also applies to a status ruling with the necessary content as in s 91GA TAA 1994.

[77] See TAA 1994, s 91DB(1) for public rulings; s 91EA(1) for private rulings; s 91FA(1) for product rulings, and s 91GH for status rulings.

[78] See TAA 1994, ss 91EB(2) (private rulings) and 91FB(2) (product rulings).

[79] Subject to the withdrawal of rulings provisions and the effect of changes in statutory law on subject matter covered by a ruling. Case law changes will not affect a ruling on an arrangement for the period of that ruling provided the arrangement has been entered into prior to the case law change.

[80] In Australia a taxpayer must follow a ruling issued under Part VAA of the Tax Administration Act 1953 (Aust), although there are appeal rights against a private ruling issued by the Australian Commissioner, (see Tax Administration Act 1953 (Aust), ss 14ZAZA to 14ZAZC). There is a risk of greater penalties if a ruling is not applied and the taxpayer is ultimately unsuccessful in upholding the position taken in his or her return. This applies effective pressure to comply with the ruling.

[81] Consequently there are no appeal rights against a private ruling issued by the Commissioner, although this issue has been the subject of controversy during the consultation process. For discussion on this issue, see for example, Adrian Sawyer, 'What are the Lessons for Australia from New Zealand's First Comprehensive Remedial Review of its Binding Rulings Regime?' (2000) 29 Australian Tax Review 133, 163.

[82] Taxation (Accrual Rules and Other Remedial Matters) Act 1999, s 88(1), repealing s 91EJ of the TAA 1994.

[83] TAA 1994, s 91EJ. Section 91EJ was repealed as from 20 May 1999 by s 88(1) Taxation (Accrual Rules and Other Remedial Matters) Act 1999.

[84] Issued under TAA 1994, ss 91E (private ruling) or 91F (product ruling).

[85] See Tax Information Bulletin, Vol. 8(9), 'Consequential Amendments to the Tax Administration Act 1994' (November 1996) 31. See further Wayne Mapp, 'Binding Rulings' (1996) 2 New Zealand Journal of Taxation Law and Policy 139, 151 (Binding rulings and judicial review). For further discussion see, TEO Newsletter No. 124 (6 November 1996), 3 on the Taxation (Core Provisions) Act 1996. This issue is expected to gather some momentum with the ITA 2004 replacing the ITA 1994, especially with the intended changes (as set out in ITA 2004, schedule 22A) and possible unintended changes in the legislation, which may see applications for status rulings; see further Adrian Sawyer, 'Comment: Rewriting the Income Tax Act 1994 - The Income Tax "Act" 2002' (2003) 9 New Zealand Journal of Taxation Law and Policy 12-25.

[86] Any substantial changes made to the tax law, other than those noted in Tax Information Bulletin Vol. 8(9), 'Consequential Amendments to the Tax Administration Act 1994' (November 1996) 31, were to be reported to the Government.

[87] See further Taxation (Core Provisions) Act 1996, s 3.

[88] Further details are available from the Rewrite Advisory Panel's website at:

[89] See the Annual Reports for the IRD for the year to 30 June 1996 to 30 June 2005 (inclusive), under 'Output Class Two or Three: Adjudication and Rulings'.

[90] See Public Information Bulletin, No 117, June 1982.

[91] This decision is noted in footnote 4 on page 31 of the 1997 IRD Annual Report, where the budget for private rulings went from 150 to 200, product rulings from 25 to 50, and public rulings from 75 to 30.

[92] John Shewan, 'The Current Tax Environment and Business's Response' (2005) Paper presented at the ICANZ National Tax Conference (15-16 October) 3-4.

[93] Ibid 3.

[94] Ibid 13.

[95] David Butler, 'Getting ready for the Future', a paper presented at the ICANZ National Tax Conference (15-16 October 2005) 11-13.

[96] Spyros Papageorgiou, 'Address to Business Roundtable' (August 2005); copy available at: (as at 4 October 2006).

[97] Changes were made on 17 October 2002 to the withdrawal process for public rulings; see ss 91DE(4) and 91DE(4A) TAA 1994.

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