South Africa's Income Tax Act is almost 50 years old and has been amended countless times to keep it abreast of developments in modern commerce. Inevitably, it has become enormously complex, at times creating uncertainty for the taxpayer. This has led to discussions at high levels about a complete re-write of South Africa's Income Tax Act. While clearer legislation will be welcomed by all, it is inevitable that there will always be those areas of tax law that are subject to different interpretations. For those cases where there is uncertainty relief may be available in the form of an advance tax ruling from the Commissioner.

The Advance Tax Ruling System was introduced in 2006 and its express purpose is "to promote clarity, consistency, and certainty regarding the interpretation and application of the Act". The Act allows the Commissioner to make binding general rulings, while a taxpayer may apply for private and class rulings in respect of the application of any of the provisions of the Act.

Where an Advance Tax Ruling applies to a taxpayer it is binding on the Commissioner, in that the Commissioner must then interpret or apply the Act in accordance with the ruling, subject to any conditions or assumptions as set out in the ruling. However, only the taxpayer to which the ruling applies can rely on it. Other taxpayers, even those party to a transaction similar to those described in a published ruling, cannot rely on that ruling. Such a ruling can, of course, provide valuable guidance to the Commissioner's approach to that sort of transaction.

It is important to note that the Commissioner does not have the authority to make law and rulings themselves are not law. What rulings do is bind the Commissioner to a particular interpretation on an issue. As an example, where the Commissioner publishes a binding general ruling that applies on the facts to a particular taxpayer and that taxpayer disagrees with the Commissioner's interpretation as set out in the ruling, the taxpayer is not bound to follow the ruling. In terms of the Act a binding general ruling may be cited by the Commissioner in any proceedings before the Courts but this does not imply that the Courts are in any way required to follow the ruling. The process is much the same in other jurisdictions such as Australia (being one jurisdiction upon which our advance tax ruling system is based) where public rulings are not law and bind only the Australian Commissioner.

Prior to the introduction of Advance Tax Rulings, taxpayers could refer to various Interpretation Notes and Practice Notes issued by the Commissioner in order to try and ascertain the Commissioners' stance on a particular section of the Act. These Notes however, were not binding in any form on the Commissioner and so, although they gave the taxpayer some form of guidance as to the probable treatment of a transaction by the Commissioner, they do not have the same weight as an Advance Tax Ruling.

It is not only the Income Tax Act that makes provision for official rulings. The Vat Act provides for the Commissioner to issue binding Vat rulings and a recent bill proposes amending the Mineral and Petroleum Resources Royalty (Administration) Act so as to allow the Commissioner to issue nonbinding private opinions on the tax treatment of a particular set of facts. As the name indicates, however,these opinions would not be binding on the Commissioner and would therefore be more akin to an Interpretation or Practice Note rather than an Advance Tax Ruling.

To date the Commissioner has published forty two binding private rulings, four binding class rulings and three VAT binding general rulings, probably a lot less than initially expected. However, as the benefits of the Advance Tax Ruling system become more apparent to taxpayers the number of rulings is expected to increase.