Tax Advance Ruling & Public Warning
Advance and Public Tax Warnings
An advance ruling is a written statement by the Director General of Inland Revenue to a person giving an interpretation on how any provision of the Act applies to a proposed arrangement described in an application.
A public ruling is issued for the purpose of providing guidance to the public and officers of the Inland Revenue Board. It sets out the interpretation of the Director General of Inland Revenue in respect of the particular tax law, and the policy and procedure that are to be applied.
There are some similarities and differences between advance ruling and public ruling.
The first similarities between both the public ruling and advance ruling are both ruling not legally bound by the law. It means that the taxpayers are not legally bound to follow public ruling or advance ruling. Although the advance ruling issued by the tax authorities are binding on the tax authorities and it only binding on the taxpayers when the taxpayers rely on the said rulings.
The next similarities between these two rulings is that both rulings aims is to provide interpretation and the income provisions under the Income Tax Act 1967 and serve as a guidance for the public.
Advance ruling differs from public ruling in terms on fees charged. Advance required an application fee of RM500 upon application and it is not refundable. It also a further fee of RM150 per hour will be imposed on taxpayers after four hours taken to provide the advance ruling. While for the public ruling, it is free of charge and the public can download the public ruling from Inland Revenue Board’s website.
The second differences between public ruling and advance ruling is that once the advance ruling is issued, it is considered final irrespective of whether it is advantageous to the person or not. On the other hand, under the public ruling, a taxpayer can submit an appeal against his own assessment in a situation where he has computed his own taxable income based on a tax treatment prescribed by the DGIR in a public ruling which he does not agree to at the time he submits his return, or within 30 days thereof.
Since the implementation of advance ruling in 2007, there are a series of problems and challenges faced by the corporate taxpayers and the MIRB. One of the problems faced by the corporate taxpayer is that there is no appeal can be made on the advance ruling issued. Once the advance ruling is issued, it is considered final irrespective of whether it is advantageous to the taxpayer or not. In the case of disadvantageous advance ruling, the person has the choice not to carry out the proposed arrangement while in the case of advantageous advance ruling, if the proposed arrangement is effected, then the advance ruling has to be complied with. Any objection against the treatment stated in the advance ruling, it can appeal under the normal appeal provisions.
The next problem faced by the corporate taxpayer is that the processing period of 60 days is too long. This time frame is only appropriate when the taxpayer furnish the necessary information request by the authorities. Time is an important issue for the corporate taxpayer. The proposed arrangement only can carry out once the advance ruling is issued. Longer time taken to issue the advance ruling, longer time for the proposed arrangement to carry out. This will definitely interrupt their normal transaction.
As the implementation of advance ruling, it is definitely increase MIRB workload. Now, the officer of this authority workload is higher compare to before the implementation. The officer need to go through the entire document furnished and understand the situations before the advance ruling can issue. Besides that, when the taxpayer did not furnish the sufficient information, the officer will get a lot of problems. Therefore, the procedure to issue an advance ruling is definitely complicated and thus workload of the officer will increase.
In order to minimize the first problem stated in part (b), MIRB should review and make amendment to the advance ruling, so that the advance ruling more flexible to the taxpayer. Besides that, the corporate taxpayer should seek advice from the tax agent before they apply for an advance ruling, because it can minimise the taxpayer from getting the disadvantageous advance ruling.
For the second problem, both party, corporate taxpayer and MIRB should work together to minimise the problem. Corporate taxpayer can minimise the problem by provide the sufficient information to the MIRB so that MIRB can carry out the procedure more efficient. For the MIRB, they can increase their efficiency by assign more officers on the same application. When more people working together, issuance of an advance ruling will took a shorter time.
For the workload of the officer, it can minimise by hire more officers and assign more officers to work for the same application. When more officers working on the same application, the workload will be apportioned between the officer and thus the workload for an officer will decrease. Even though it will increase labor cost for MIRB, but when the public satisfy with services provided by MIRB, it will also benefits the MIRB.
- Income Tax (Advance Ruling) Rules 2007
- Income Tax (Advance Ruling) Rules 2008
- Advance Rulings: A Complete Review
– Public Ruling process
– Guidelines on Advance Rulings
- Advance Rulings – What to Expect by Ms Eow Siew Lee, 4th Quarter 2006 Tax Nasional
– Gaining from Advance Ruling