Chapter 4 - Charging for Binding Rulings
4.1 Private, product and status binding rulings all incur fees that are based on recovering the cost of providing the ruling. The fees include an application fee of $310 which covers the costs of receiving and reviewing the ruling application and a fee of $155 per hour spent by Inland Revenue considering the application. This includes time spent consulting with the applicant. Any costs incurred by Inland Revenue in consulting with external professionals to obtain independent advice are also passed on to the applicant.
4.2 Upon receipt of a binding ruling application, Inland Revenue estimates the time it will take to produce the ruling, and therefore the cost, and advises applicants accordingly. If the estimate proves to be too low, Inland Revenue re-estimates the cost and advises applicants before continuing work on the ruling.
4.3 The rationale for charging fees is that the applicant receives the benefit of certainty about how Inland Revenue will apply the tax laws in relation to their situation. If no fee were charged, taxpayers in general would effectively fund the benefit received by the applicant.
4.4 Charging a fee also ensures that applications for straightforward, everyday transactions, are limited and tend instead to relate to more complex transactions. If Inland Revenue received large volumes of applications for simple transactions, resources would need to be diverted from other areas of Inland Revenue to process them.
4.5 Binding rulings may also provide a second opinion or an additional degree of comfort to advice provided by tax professionals. In that context, assuming the rulings system is operationally effective, charging fees is regarded as justifiable.
4.6 Currently, Inland Revenue may in exceptional circumstances, at the Commissioner’s discretion, waive in whole or in part any fee payable by an applicant. This provision, Regulation 6 of the Tax Administration (Binding Rulings) Regulations 1999, is similar to other provisions that allow Inland Revenue to waive fees – for example, for financial arrangement determinations and depreciation determinations.
4.7 There is a concern that the current waiver provision does not provide sufficient direction over the circumstances in which binding rulings fees should be waived.
4.8 Inland Revenue staff involved in considering rulings applications will have different skill and experience levels but there is a risk that waiving fees for different levels could be too frequent an occurrence to be treated as an “exceptional circumstance”. However, a lower level of expertise will frequently result in more time being spent on a ruling application and application of the fee waiver may be justified in these cases.
4.9 Another problem arises when a significant amount of time is spent researching an issue and the research is, or will be, relevant to a number of different rulings. In some cases it would be inequitable to charge all of the time to the first ruling that considers the issue. In other instances this may be perfectly reasonable.
4.10 We suggest that the waiver provision in the Tax Administration (Binding Rulings) Regulations 1999 be amended so that it takes into account what is fair and reasonable in the circumstances.
4.11 On the issue of differing skill and experience levels, we considered whether, as often happens in private firms, differential rates should be applied according to the relative skill and experience levels (as reflected in the job description) of the staff. On balance, we concluded that this would add more complexity to the system than is worthwhile as the rates would need to be benchmarked and regularly reviewed. However, what is fair and reasonable in the circumstances could have regard to the skill and experience levels of staff handling rulings applications.
4.12 If the binding rulings waiver provision is amended, consideration should be given to amending similar provisions in the financial arrangement determination and depreciation determination regulations.
Closing ruling applications and consultation
4.13 Before private, product and status rulings are issued, Inland Revenue must consult with the applicant if the content of the proposed ruling differs from that requested.
4.14 This consultation gives the applicant an opportunity to comment on the interpretation adopted by Inland Revenue before the ruling is issued. It also allows further information to be obtained about the implications of the ruling.
4.15 Despite its benefits, consultation is one of the factors that contributes to the delay in issuing binding rulings. Providing additional information, and/or possible changes to the arrangement itself to “make it fit” the requested ruling, can add significantly to the time taken. This is particularly so if Inland Revenue has indicated that a negative ruling may be given. In this event the applicant may often choose to amend the arrangement to obtain a favourable ruling.
4.16 The Australian Tax Office (the ATO) treats any revision of an arrangement or the submission of additional information, even if at the request of the ATO, as a fresh application for a ruling.  This approach may increase the incentive for applicants to provide all of the relevant information to the tax authority in the first instance.
4.17 The approach is more difficult to justify in New Zealand where rulings are charged for. Delays in issuing rulings may be reduced if the legislation specified a requirement for just one consultation period or one conference, and for any further information to be provided or requested during or at that consultation period or conference. We are interested in submissions on the workability of this approach.
4.18 While the opportunity for the applicant to provide additional information would be limited if this suggestion were implemented, we note that in cases where the arrangement already exists at the time of application, there is little opportunity to change the nature of the arrangement. If the application is for a proposed arrangement, the arrangement needs to be seriously contemplated. To meet this condition, it could be argued that only limited opportunity for changes to the arrangement could be contemplated.
GST and binding ruling fees
4.19 Under Regulation 7 of the Tax Administration (Binding Rulings) Regulations 1995 the fees charged for binding rulings are inclusive of any goods and services tax.
4.20 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.
4.21 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.
Summary of suggested options
Introduce a more flexible fee-waiver provision based on what is fair and reasonable in the circumstances.
Allow only one consultation period or one conference for the provision of, or a request for, additional information.
Provide that the fees for binding rulings supplied to non-residents outside New Zealand are reduced by 1/9th if the supply is zero-rated.