What is a binding ruling?
On this page
- What is a binding ruling?
- What is the purpose of a binding ruling?
- Types of binding rulings
What is a binding ruling?
A binding ruling is Inland Revenue's interpretation of how a tax law applies to a particular arrangement, person or item of property. This can be on any agreement, contract, plan or understanding (whether enforceable or not), including any steps and transactions that carry it into effect or it can be whether a person or item of property meets the requirements of tax law.
Binding rulings can provide certainty on the tax position for a wide range of transactions, from complex financing transactions to land subdivisions. Anyone can apply for a binding ruling on a transaction, but there are some restrictions on our ability to provide a binding ruling.
If a binding ruling applies to a taxpayer, and they follow it, Inland Revenue is bound by it (provided that the facts are exactly as described in the ruling, and that the stipulated conditions are satisfied). A taxpayer is not required to follow the approach in the ruling.
A binding ruling does not remove the requirement to file an income tax return and pay any taxes. We're required by law to charge a fee for preparing a private or product ruling.
What is the purpose of a binding ruling?
Binding rulings help taxpayers comply with the law and to meet their obligations under the law. They provide certainty about how Inland Revenue will interpret how the law applies to a specific transaction, person or item of property.
They are especially useful where:
- the law is unclear and there is more than one possible interpretation
- new legislation applies to the transaction
- the transaction is novel, sensitive or controversial
- significant issues arise or may have a wide impact
- the arrangement is a complex financing transaction.
Types of binding rulings
There are five types of binding rulings.
- Private rulings
- Short-process rulings
- Product rulings
- Public rulings
- Status rulings
A private ruling gives a single taxpayer or group of taxpayers an interpretation of how the tax law applies to a particular arrangement, person or item of property. You must apply for a private ruling, and it is confidential to you and any other applicants.
A private ruling only applies to the person(s) named in the ruling. The facts must be exactly as described in the ruling and the person must satisfy any stated conditions.
Advance pricing agreements (APAs)
These are a type of private ruling. APAs represent a co-operative approach to addressing transfer pricing compliance. They can produce significant time and cost savings for both tax authorities and multinationals in comparison with an audit. APAs encourage up-front taxpayer compliance and early resolution of potential disputes. They offer a practical solution to complex cases with difficult facts and circumstances.
APAs are ideally suited to issues involving intangibles and specialised services which can result in a wide range of opinions as to pricing.
Unilateral APAs can be issued in the form of a private ruling. Email email@example.com for assistance.
An application fee of $322 is payable for a private ruling.
If any overseas travel is involved in completing an APA we will provide an estimate of such costs prior to travel being undertaken and seek to recover "out of pocket" costs (transport, accommodation and meals) on an actual and reasonable basis from the taxpayer.
Applicants for APAs must complete these forms which are available on the Guides and forms page:
- Application for private ruling on transfer pricing arrangement – additional declaration (IR713A), and
- Application for private ruling (IR713).
A short-process ruling is a quicker, less expensive type of binding ruling, if the taxpayer meets the following eligibility requirements:
- the taxpayer must have an annual gross income of $20 million or less in the previous tax year.
- the tax question must be about an amount of tax, duty or levy expected to be less than $1 million for the relevant year.
A product ruling is an interpretation of how the tax law applies to a particular “product” or "consumers" of a "product", that is entered into by several people on identical terms. For example, a product ruling could be given on whether delivery drivers are employees or independent contractors Product rulings can only be made where it isn't practicable to identify the relevant taxpayers and whose characteristics will not affect the content of the ruling.
A product ruling only applies to persons who transact as described in the ruling, and satisfy all stated conditions.
Public rulings interpret how a tax law applies to a specific type of arrangement that has a wide general application. If your circumstances match those in a public ruling and you meet all requirements in the ruling Inland Revenue is bound to follow it. You may apply it, but you are not required to.
You can suggest a tax interpretation topics of broad interest, by email to firstname.lastname@example.org.
If a relevant tax law is amended or repealed, the person who applied for an existing private or product ruling can apply for a status ruling on whether that amendment or repeal changes the way that the law applies in the private or product ruling.