Advance rulings are written interpretations of Singapore tax law issued by the Inland Revenue Authority of Singapore (“IRAS”) on what it believes the tax treatment of a proposed arrangement should be. Upon the payment of a small fee, taxpayers may submit applications to the IRAS for advance rulings, which can be an excellent way of ensuring tax certainty for future arrangements.
Benefits of Advance Rulings
The main benefit of advance rulings is that they are binding on the IRAS, provided that all the relevant information is properly disclosed and the proposed arrangement proceeds exactly as described in the advance ruling application. When a taxpayer files its annual tax returns, the IRAS must issue an assessment which applies the advance ruling. They are thus an excellent way to manage tax risks and ensure tax certainty.
Advance rulings are not binding on the applicant, though an applicant who receives an advance ruling will be required to disclose the existence of the ruling and whether it was relied on in preparing and filing a tax return. The IRAS will apply the advance ruling when issuing the tax assessment. However, the taxpayer will still be free to challenge the tax assessment through the usual mechanisms for appealing against and objecting to a tax assessment.
There is a prescribed application form available from the IRAS website which requires an applicant to describe the issue(s) to be considered and all the relevant background facts. The application should be carefully drafted to ensure that it accurately presents the proposed arrangement. It should also clearly crystallise the legal issues to be determined and provide the IRAS with all the information required for it to easily reach a conclusion.
Upon submitting the advance ruling application form by email, the IRAS will acknowledge receipt of the application within 3 working days. Thereafter, within 6 weeks of receiving the application, the IRAS will decide whether to proceed with processing the application, ask for more information, or reject the application. If the IRAS decides to proceed, it will issue an offer letter detailing the estimated fees for the application. Once this offer is accepted and the relevant fees are paid, the IRAS will issue the advance ruling within 8 weeks. In exceptional circumstances, the IRAS may be willing to issue an express ruling within 6 rather than 8 weeks, but additional fees may be applicable.
The Applicable Fees
All advance ruling applications will be subject to a basic application fee of S$660, which is non-refundable regardless of whether the IRAS decides to accept or reject the application. If the application is accepted, further fees may be payable at the rate of S$165 per hour (including GST) for each hour or part thereof required in the preparation of the advance ruling beyond the initial 4 hours. In exceptional circumstances where the IRAS agrees to expedite the ruling process, there may be an additional fee of 1 to 3 times the aggregate of the application fee and further time-based fee.
When to Make an Advance Ruling Application
Advance ruling applications can be helpful in a variety of situations. The starting point is to have a discussion with a trusted tax professional with regard to the potential tax implications of a proposed arrangement. If there is a possibility that an arrangement might result in one of two or more potential tax treatments, and the difference in the quantum of tax is large enough, then it might be worth considering applying for an advance ruling. For example, if a taxpayer is considering selling a property at a net gain, income tax may or may not be payable depending on whether the gain is considered income or capital gains. If the potential tax payable is large enough, a taxpayer may wish to seek an advance ruling to definitively determine the tax treatment of the proposed arrangement, and possibly use the ruling to decide whether to sell the property. If the taxpayer obtains a favourable ruling, he/she might decide to proceed with the sale of the property, confident in the knowledge that no tax would be payable. On the other hand, an unfavourable ruling might enable the taxpayer to know beforehand that a large tax bill would be payable, and thus encourage the taxpayer to reconsider the sale.
Other situations where advance ruling applications might be helpful include times where the proposed arrangement is novel and there is little guidance on what the possible tax treatment might be, or where a taxpayer is risk-averse and would prefer to avoid any potential disputes with the IRAS. In such cases, an advance ruling application provides the taxpayer with an opportunity to make his/her case on what the tax treatment of a proposed arrangement should be, in an open and cordial fashion, without binding oneself to proceed with the arrangement. It is generally also a lot less expensive to engage a tax professional to submit an advance ruling application than it is to engage the same professional to object to and appeal against an assessment. Thus, advance ruling applications should be part of every good tax management plan and deployed in appropriate situations.
Do feel free to reach out to Kit or Vincent from our tax practice to discuss whether you might be able to benefit from the tax certainty that an advance ruling can offer. We are grateful to our intern, Zoe Koh, for her excellent research for this article.