Example 7: An applicant requests a ruling as to whether or not a proposed transaction in connection with the sale of shares in a foreign subsidiary and a possible subsequent disposal of the proceeds from that sale would constitute a ‘transaction, operation or scheme’ for purposes of paragraph 64B(3)(c)(iii) of the Eighth Schedule to the Income Tax Act.
Example 8: An applicant requests a ruling as to whether or not a proposed transaction involving an ‘instrument’ (as defined in section 24J(1) of the Income Tax Act) and subsequent payments to a connected person in relation to the issuer of that instrument would constitute a ‘transaction, operation or scheme’ for purposes of the proviso to the definition of the term ‘yield to maturity’ [also in section 24J(1)].
Example 9: An applicant requests a ruling in respect of its right to claim capital allowances under section 12C of the Income Tax Act in connection with its acquisition of an aircraft. The financing of the acquisition involves a series of steps and the use of a number of complex financial derivatives. The net effect of these various steps and financial derivatives is to create a circular flow of cash among the parties to the proposed transaction that is routed through a tax indifferent party and results in a substantial inflation of the cost of the aircraft. These aspects of the proposed transaction were not disclosed in the application and were not evident from the information provided. Upon discovery of these elements, SARS may reject the application under this exclusion. A similar result would apply if the applicant had failed to disclose any steps in, or parts of, the proposed transaction that would have given rise to the circular flow of cash. In this situation, the applicant remains liable for the work done on the application. The application fee paid may not be refunded and any outstanding cost recovery fee incurred up to the date of rejection must be paid.
Situations in which this rejection might not apply
SARS would not apply this rejection if the application merely contains a statement that provides information that may either be required or helpful in connection with the application. For example, an application that requests a ruling as to whether or not a proposed transfer of assets from one company group to another would constitute an intra-group transaction under section 45(1) of the Income Tax Act, would not be rejected simply because it includes a statement that the proposed transaction is not part of a larger transaction, operation or scheme.
(m) An application regarding an issue that is of a factual nature – section 80(1)(d)(i)
The ATR system is designed to provide taxpayers with certainty in respect of SARS’s view on questions of the law. It is not designed or appropriate for the resolution of questions of fact. Facts can only be established after a transaction has been completed and any factual issues must be resolved through the audit process.
Many important tax issues involve the application or interpretation of the tax laws to the facts of a proposed transaction. Applications for rulings in connection with such issues generally do not present a problem. However, some issues are of an inherently or distinctly factual nature. It is issues of this kind to which this exclusion may be applied.
Example 10: An applicant requests a ruling as to whether an amount to be received or accrued (or expenditure to be incurred) would be of a revenue or capital nature in circumstances that necessitate the determination of its intention on the basis of – amongst others – the surrounding facts. The guiding principle is whether it would be necessary, in case of legal proceedings to determine any dispute concerning the applicant’s intention, to cross-examine the applicant on its evidence as to that intention.
Example 11: An applicant requests a ruling that the proposed activities of the applicant constitutes the carrying on of a trade for purposes of section 11 of the Income Tax Act. SARS may update the list in respect of additional considerations in order to identify specific issues that are of an inherently or distinctly factual nature and would therefore be rejected under this exclusion. It is the applicant’s responsibility to consult the list before submitting an application. If an applicant requests a ruling in connection with an issue that has been identified as an inherently or distinctly factual one, the application may be rejected without any refund of the application fee.
Situations in which this rejection may not apply
SARS would not apply this rejection if the application merely contains statements that provide required or helpful information in connection with the proposed transaction. For example, an application would not be rejected because it contains a complete description of the facts in respect of a proposed transaction as required by section 79(4).
SARS will also not apply this rejection if the application raises a question of law and the factual matters are merely incidental or subsidiary to the resolution of that legal issue. In these situations, the ruling would only reflect the application or interpretation of the law in respect of the facts that are presented in the application – it would not be issuing a ruling or determination in respect of the facts themselves.
Finally, SARS may issue a ruling in connection with a legal issue that is –
 dependent upon a particular set of facts; and
 those facts are clear, straightforward and basic to the application or interpretation of the tax law in respect of the proposed transaction. Again, in these situations, the ruling would only be applying and interpreting the tax law to the facts presented and would not be making a ruling or determination in respect of those facts.
Example 12: An applicant is engaged in manufacturing motor vehicles and is proposing to acquire and install a new, state-of-the-art CAD/CAM system in order to increase the efficiency and reduce the costs of its manufacturing operations. In connection with its application the applicant submits various marketing, technical and training materials that describe the function and operation of the new system in detail. The applicant requests a ruling that the CAD/CAM system would constitute machinery used by the applicant directly in the process of manufacture for purposes of section 12C of the Income Tax Act.
Example 13: The applicant is proposing to enter into a complex, multi-step transaction in connection with a proposed broad based black empowerment scheme. As part of this transaction, the applicant is proposing to transfer certain assets to a subsidiary in which it will hold at least 70% of the shares at the time of the transfer. The applicant requests a ruling that the proposed transfer would qualify as an ‘intra-group transaction’ for purposes of section 45 of the Income Tax Act.
(n) An application regarding an issue, the resolution of which would depend upon
assumptions of future events or other matters that cannot be reasonably determined at the time of the application – section 80(1)(d)(ii) Under this exclusion, an application would generally be rejected if the resolution of the issue depends upon a future action of another person unless that person is a party to the proposed transaction. In addition, an application would generally be rejected if the resolution of the issue depends upon future events that are beyond the control of the applicant or other parties to the proposed transaction.
Example 15: An applicant requests a ruling that the ring-fencing provisions of section 20A of the Income Tax Act would not apply to assessed losses from a proposed new trade. The trade in question is not one of those identified in section 20A(2)(b) of that Act. In these circumstances, the application of the ring-fencing provisions would depend upon, among other things, whether or not the applicant will incur assessed losses from that trade in future years. This fact is beyond the control of the applicant and cannot be determined at the time the application is made. Accordingly, the exclusion would apply and the application would be rejected.
Example 16: An applicant proposes to rent premises with the intention to develop them by building an office park. It then proposes to let the office space to prospective tenants. It seeks rulings regarding allowances it proposes to claim under sections 11(g) and 11(h) of the Income Tax Act. In order to be able to claim the allowances the applicant proposes to enter into leases with prospective tenants and with the landowner upon certain specific terms it sets forth in the application. If those terms are indeed agreed upon the application will be successful.
SARS will however have to assume that in the foreseeable future all of those parties will agree to enter into the proposed transaction on precisely the terms the applicant states it will seek to secure. Although the applicant therefore proposes a transaction, SARS will be unlikely to make all of the assumptions necessary to result in a successful application in this instance. The applicant would have to identify the parties who, ideally, should as far as possible be co-applicants. SARS will however not require the impossible. It would be easier to join in the application with the landowner than with prospective tenants. The applicants will also have to produce their proposed contract of lease and the lessee would have to produce the standard terms upon which it will insist on subletting the office space. If at least one proposed sub-lessee has already been identified, this will strengthen the applicant’s prospects all the more. Otherwise SARS might accept the application and issue a positive ruling on condition that the subleases are entered into strictly on the terms the applicant proposes.
Situations in which this rejection may not apply
Under section 78(3), SARS may issue a binding ruling subject to conditions and
assumptions that are prescribed in the ruling. In certain situations, an application may contain statements in respect of the future conduct of the parties that are directly relevant to the issue raised in connection with the proposed transaction. In such a situation, SARS may issue a ruling, but only on the condition that the future behaviour of the parties actually occur strictly in accordance with the statements made in the application.
If an applicant subsequently fails to satisfy such a condition or assumption, the ruling will be rendered void from the time it was issued in accordance with section 84(1)(c). For more detailed information in connection with this issue, please read 5.2.1.
(o) An application regarding an issue which would be more appropriately dealt with by the competent authorities of the parties to an agreement for the avoidance of double taxation – section 80(1)(d)(iii) SARS may reject an application regarding or in respect of an issue which would be more appropriately dealt with by the competent authorities of the parties to an agreement for the avoidance of double taxation.
(p) An application regarding an issue which is the same as or substantially similar
to an issue upon which the applicant has already received an unfavourable ruling – section 80(1)(d)(vi)
The ATR system has limited resources and it is vital that these resources be allocated and used as efficiently and effectively as possible. There is also no appeal against an unfavourable ruling. A second or further application on similar issues by the recipient of a prior unfavourable ruling can therefore amount to an abuse of the ATR process, which this provision seeks to prevent.
Generally, this exclusion may be applied if –
 an applicant makes repeated applications in connection with recurring proposed
transactions; and
 there have been no material changes in the relevant facts or tax law since the prior unfavourable rulings were issued.
(q) An application regarding an issue in which the tax treatment of the applicant is
dependent upon the tax treatment of another party to the proposed transaction
and that other party has not applied for a ruling – section 80(1)(d)(iv)
In certain complex multi-party transactions, for example, the resolution of an issue raised by the applicant may depend upon the tax treatment of another party in connection with or as a result of its participation in the transaction. This exclusion may be applied in such circumstances.
Example 17: An applicant is a resident company and is a wholly-owned subsidiary of Holdco, another resident company. Company X is also a resident company. Company X has several classes of equity shares with differing rights, none of which are currently owned by the applicant or Holdco. In a multi-step proposed transaction, Holdco proposes to acquire more than 70% of some, but not all, of the different classes of equity shares issued by Company X. Upon completion of this step, the applicant plans to transfer certain assets to Company X in order to consolidate the operations of the two companies (the applicant and company X) and to achieve certain economies of scale. In its application, the applicant requests a ruling that the proposed transfer of assets constitutes an ‘intra-group transfer’ as defined in section 45(1) of the Income Tax Act. In order for a transaction to satisfy that definition, however, the applicant and Company X must be members of the same group of companies. The resolution of that issue, in turn, depends upon whether or not Holdco will own at least 70% of the total equity shares of Company X upon the completion of the first step. Under these circumstances, the exclusion may be applied unless Holdco also submits an application in connection with the ownership issue.
Example 18: An applicant applies for a ruling under section 11(g) of the Income Tax Act, but the party to whom the right to have such improvements effected will accrue, is not party to the application. The exclusion may be applied, unless the party to whom the right accrues is a co-applicant in the application.
(r) An application regarding a proposed transaction that is part of another transaction which has a bearing on that issue and the details of that other transaction have not been disclosed – section 80(1)(d)(v)
SARS may reject an application if the applicant requests a ruling on an issue –
 in connection with a proposed transaction;
 that proposed transaction is part of another transaction;
 that other transaction has a bearing on the issue raised; and
 the details of that other transaction have not been disclosed.
Generally, this exclusion is likely to be a concern in complex multi-party, multi-step
transactions.
Example 19: The applicant, a resident company, is proposing to enter into an amalgamation transaction, as contemplated in section 44 of the Income Tax Act, with another resident company, Resultant. As part of this proposed transaction, the applicant will dispose of all of its assets to Resultant solely in exchange for equity shares of Resultant and the assumption of the debts of the applicant, some of which will have been incurred within 18 months of the proposed transaction (‘recent debt’). The applicant requests a ruling that the assets disposed of by it will qualify the applicant for full ‘roll-over’ relief under section 44, but does not disclose the circumstances under which the recent debt was incurred. Whether or not the
applicant is entitled to full roll-over relief, however, depends upon the ircumstances in which such debt is incurred. Accordingly, this exclusion may be applied, unless the applicant also discloses the details of those relevant transactions.
An applicant in this situation will be given an opportunity to provide the requisite information. If the applicant still fails or refuses to provide the requisite nformation, the application will be rejected. If an application is rejected under this rule, the applicant will not receive a refund of the application fee or any cost recovery fee incurred in connection with the application up to the date of rejection.
The above example concerns an easily remediable failure to provide all of the required information. There are instances in which information is not strictly speaking necessary to complete the picture, but the failure to disclose certain information nonetheless raises the question why the applicant chose not to make a full disclosure. SARS will not accept as an explanation the reason that the applicant considered that SARS did not need to know or that SARS ought to have known about the undisclosed information because of information already under SARS’s control. The ATR process is one in which SARS is dependent on the honesty of taxpayers and tax practitioners. SARS therefore requires a sanction through which to compel applicants to adhere to the highest ethical standards of disclosure in their dealings with the ATR Unit. The application process is in many ways similar to an ex parte application to a court of law. Our courts have repeatedly stressed that an applicant in such an application – because it is unopposed – is under an even stricter duty to make a full and frank disclosure and SARS considers that the same standard applies to ATR applications. It follows that if a non-disclosure is discovered that SARS considers significant, the applicant may be requested to provide reasons why the application should not be rejected on that account.
(s) An application regarding a matter that would be unduly time-consuming or
resource intensive – section 80(1)(e)
This rejection is intended to help ensure that the limited resources available to the ATR Unit are optimally utilised. As a result, SARS may reject such an application. In particular, this exclusion may be applied in situations in which the applicant fails to submit a timely application, taking into account the number and complexity of the issues raised and the complexity of the proposed transaction itself or the voluminous nature of the supporting documentation.
Before an application is rejected under this provision, the applicant will be notified and given an opportunity to present any special circumstances that support or justify accepting the application.
The applicant will generally receive a refund of the application fee if an application is rejected under this exclusion.
Example 20: An applicant, a resident company, intends to enter into a complex multi-national restructuring transaction which has been under consideration for more than a year. The proposed transaction would involve more than a dozen steps and would involve more than 25 separate legal arrangements. The applicant requests a ruling in connection with 20 discrete issues, including complex issues under section 9D of the Income Tax Act, the corporate rules, and the Eighth Schedule to that Act. The applicant submits the binding ruling application 15 days
before the proposed transaction date. In this situation it would require an extraordinary last minute reallocation of resources to address this application to the detriment of other applicants who had submitted their applications timeously. In addition, given the number and complexity of the issues raised and the complexity of the underlying proposed transaction itself, it is unlikely that SARS would be able to address the issues raised in a proper manner within the limited time the applicant has left. Under these circumstances, the exclusion would be applied.
(t) An application requesting SARS to rule on the substance of a ‘transaction’ and
disregard its form – section 80(1)(f)
SARS may reject an application about a matter that requires SARS to rule on the substance of a transaction and disregard its form.
(u) The applicant fails or declines to provide additional information that has been
requested by SARS in connection with the application – section 79(5) SARS is entitled to request additional information from an applicant at any time and to reject an application if the applicant fails or refuses to comply with such a request. If an application is rejected under this provision the applicant will not receive a refund of the application fee or any cost recovery fee incurred in connection with the application up to the date of rejection.
3.1.2 Additional considerations in respect of which the Commissioner may reject an
application – section 80(2).
SARS is authorised to publish a list of issues in respect of which applications may be rejected. The currently operative exclusions are listed below. The list is intended to assist applicants by identifying specific issues in respect of which applications may not be accepted, for example, to identify particular issues that –
 are currently pending before the courts; or
 may be declined because these issues are inherently or distinctly factual in nature.
Income Tax
(a) The deductibility of expenditure relating to the taking over of liabilities or of
provisions upon the acquisition of a business.
(b) The qualifying allowance, contemplated in section 24C of the Income Tax Act, in
respect of future expenditure, that SARS may determine.
(c) The validity of the treatment of amounts as ‘salary sacrifices’ for remuneration
purposes.
(d) Requests that circumvent mechanisms enabling SARS to issue directives. For
example, this exclusion will apply to directives as provided for in paragraph 3 of the Seventh Schedule to the Income Tax Act.
(e) The interpretation and application of the exemption under section 10(1)(c)(v) of
the Income Tax Act in relation to any agreement entered into before 1 January1990.
(f) The deductibility of any expense incurred by an employer in order to transfer or
extinguish, in whole or in part, its post-retirement medical aid obligations to past
and present employees (excluding deductions under section 12M of the Income
Tax Act), specifically including, but not limited to –
(i) lump sum contributions to pension, provident or benefit funds;
(ii) lump sum settlement payments made directly to employees; and
(iii) premiums paid by the employer to acquire annuity policies.
(g) The deductibility, under sections 11(a) or 24J(2) of the Income Tax Act, of
interest incurred by a company on debt used to finance the acquisition of shares in another company for the purpose of acquiring the underlying assets or business.
(h) The determination of the place of effective management for purposes of the
definition of the term ‘resident’ in section 1(1) of the Income Tax Act.
(i) The tax implications of transactions that involve a so-called purpose trust.
Value-Added Tax (VAT)
(a) Applications in which the supplier of goods or services is not the applicant or a
co-applicant and the application pertains to the VAT liability of a supply of goods or services made by that supplier.
(b) Confirmation that a person is acting as an agent or principal in respect of a
supply of goods or services.
(c) The application of section 8(15) of the VAT Act, and whether a supply of goods
or services constitutes a single supply.
(d) Confirmation whether or not any technical requirements are met in respect of
electronic invoicing.
Donations Tax
(a) Considering the price or amount that would constitute ‘fair market value’ under
section 55(1) of the Income Tax Act.
(b) Any exercise of SARS’s discretion under section 58(1) of the Income Tax Act
concerning the adequacy of consideration given for the disposal of property.
General
(a) Applications concerning the attribution, allocation or apportionment of
expenditure or input tax (from an income tax and VAT perspective), excluding a
request for an alternative apportionment method in terms of section 41B of the
VAT Act.
(b) Applications pertaining to the tax consequences of transactions in respect of
agreements which have already been concluded, except requests for:
(i) VAT rulings or VAT class rulings under section 41B of the VAT Act; or
(ii) The reconfirmation of a ruling, before its expiry date, if the facts
(including all the terms of the transaction) and the applicable provisions of the relevant legislation remained the same.
(c) Applications relating to or involving transactions which, in the opinion of SARS,
could be subject to any general or specific anti-avoidance provisions in the various Acts administered by SARS. Should the applicant be uncertain whether this item will apply to an application, a draft application may be submitted before registering it on e-Filing and paying the application fee. This application should clearly indicate ‘No Rulings List’ in the subject line and be sent to [email protected].
Notes:
1. The list of additional considerations is published on the SARS website on the ATR
homepage and is updated on a continuous basis. Please consult the list before
submitting the ruling application to ensure that the issue is not part of the latest updated list.
2. If you submit an application and it is subsequently determined that the application requests or requires a ruling in connection with an issue that was identified in the exclusions as published in the Government Gazette at the time that the application was filed, the application may be rejected without any refund of the application fee.