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Getting certainty in the absence of a binding ruling
On 16 November 2012, the Commissioner released the Statement titled “Status of the Commissioner’s Advice” (“the Statement”). The Statement outlines the Commissioner’s approach to advice that is given by her which is not a binding on the Commissioner but which is later found to be incorrect when for example:
- A court decision clarifies the law to be other than stated by the Commissioner;
- The Commissioner discovers an error in earlier advice; or
- The Commissioner reconsiders earlier advice and takes a different view.
What may be of particular interest to taxpayers is that the Statement refers to the “Commissioner’s official opinion” and that fact that reliance on the same will protect a taxpayer from any shortfall penalties and, in respect of opinions issued on or after 7 September 2010, protection against the imposition of any use of money interest. In the case of the Commissioner’s official opinion there is a distinction between the ability of the Commissioner to recover core tax and the ability to recover interest and penalties.
The “Commissioner’s Official Opinion” is a much over looked amendment to the Tax Administration Act 1994 (“TAA”) that took place in 2010 (with effect from 7 September 2010). Section 3 of the TAA now provides that this:
“(a) means, for a taxpayer,-
(i) an opinion of the Commissioner concerning the tax affairs of the taxpayer, given by the Commissioner, either orally or in writing, after all information relevant to forming the opinion has been provided to the Commissioner, if that information is correct:
(ii) a finalised official statement of the Commissioner, in writing, if it specifically applies to the taxpayer’s situation:
(b) does not include a private binding ruling.”
Section 120W, TAA provides that in relation to Commissioner’s official opinions given on or after 7 September 2010, a taxpayer is not liable to pay interest on unpaid tax to the extent that its arises because they relied on a Commissioner’s official opinion.
Further, section 141B(1D), TAA provides that a taxpayer does not take an unacceptable tax position to the extent to which they have taken their position because they relied on a Commissioner’s official opinion.
As the definition of Commissioner’s official opinion makes clear, there are two types of Commissioner’s official opinion, taxpayer specific opinions and official statements.
In relation to the former, the taxpayer must have provided all relevant information to the Commissioner in order to rely on the specific advice being the “Commissioner’s official opinion”.
Although binding rulings provide taxpayers with the most degree of certainty in relation to the core tax liability for a taxpayer, there are circumstances where, time and cost wise, it is not feasible to apply for such a ruling. A written application for a Commissioner’s official opinion to the IRD Officer with whom a taxpayer has a relationship can be a worthwhile option to consider. Our experience with certain clients in that requesting the Commissioner’s official opinion on a matter can be turned around relatively quickly by comparison with binding rulings and, although there is an exposure in relation to the core tax position, it does still provide protection against the imposition of penalties and interest. With the high rates of use of money interest that become payable in this jurisdiction, such protection can be valuable.
The only caveat in this regard is that, as with a binding ruling, a Commissioner’s official opinion is only binding to the extent all relevant information is provided to the Commissioner at the time of making the application.
Therefore, whilst the Commissioner’s official opinion is not binding on the Commissioner in relation to the substantive tax position, it definitely serves as a valuable alternative for taxpayers who cannot afford the cost and time associated with a binding ruling or need certainty within a shorter time frame.
If you would like to discuss the above further or have any questions, please contact:
Executive Director – Tax Controversy (Auckland)
Tel: +64 9 377 7073
Senior Manager – Tax Controversy (Auckland)
Tel: +64 9 377 4790