Mass marketed and publicly promoted scheme rulings

An amendment has been made to allow promoters of arrangements, or those with an interest similar to that of a promoter, to apply for a product ruling for prospective arrangements. Previously a promoter could not request a binding ruling on an arrangement if the promoter was not a party to the arrangement. Allowing promoters of schemes to apply for product rulings could enhance overall tax compliance if such applications become standard practice.

Background

A product ruling sets out Inland Revenue's interpretation of how the tax law applies to an arrangement that is likely to be entered into with a number of people on identical terms. One of the conditions when applying for a product ruling was that the applicant must have intended to be a party to the proposed arrangement (section 91FC(1A)).

This meant the promoter of an arrangement could not generally apply for a product ruling. This position followed a legislative clarification in 1999 intended, among other things, to ensure that rulings applications were limited to "seriously contemplated" arrangements.

There are advantages to investors and promoters in Inland Revenue issuing binding rulings on schemes. Prospective investors can make their investment decision in full knowledge of the tax effects of the arrangement and this would assist with compliance with their tax obligations. The promoter of the scheme can use the binding ruling to market the scheme as a means of demonstrating that the scheme is sound from a tax perspective. For Inland Revenue there are also benefits in such rulings being made available. Inland Revenue will become aware of the arrangement at an early stage and administrative costs in auditing the scheme will be reduced.

Key features

New section 91FC(1A) of the Tax Administration Act 1994 allows promoters of arrangements to apply for product rulings for prospective arrangements.

To deal with the possible incentive for promoters of arrangements to omit relevant information or misrepresent the arrangement to obtain a favourable binding ruling, the promoter of the scheme is required to make a statutory declaration that the relevant facts and documents provided in the application are correct. The Commissioner has also been given a discretion not to rule if the promoter has previously applied for such a ruling and omitted relevant information or provided false information.

Application date

The amendments apply from the day of Royal assent, being 7 September 2010.