3.
3.1 Rejections
General overview
The TA Act imposes certain limits upon the issues in respect of which you may request a BPR or BCR. These limitations require the rejection of applications that do not qualify for consideration.
Rejections generally address four basic areas of concern:
 The impossibility of addressing fact-intensive issues through the ATR system.
 The need to have a complete picture of a proposed transaction before a ruling can be issued.
 The need to allocate limited resources in the most efficient and effective way
possible.
 Certain basic policy issues in connection with the proper role of the ATR system.
These limitations are discussed in more detail in 3.1.1 below.
Note:
1. It is your responsibility to consult this list before submitting an application.
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 this list at the time the application was submitted, the application will be rejected without any refund of the application fee.
3.1.1 Rejections – section 80(1)
SARS may reject an application for an ATR in connection with certain matters.
The exclusions and refusals apply to the applications listed below and are discussed in detail under (a) to (u) of this paragraph:
 An application requesting an opinion, conclusion or determination regarding –
 the market value of an asset;
 the application or interpretation of the laws of a foreign country;
 the pricing of goods or services supplied by or rendered to a connected person in relation to the applicant or a class member;
 the constitutionality of a tax Act;
 a proposed transaction that is hypothetical or not seriously contemplated at the time the application is filed;
 a matter which can be resolved by SARS issuing a directive under the Fourth or Seventh Schedule to the Income Tax Act;
 whether a person is an independent contractor, labour broker or personal service provider; or
 an application that is submitted for academic purposes.
 An application that contains –
 a frivolous or vexatious issue;
 alternative courses of action by the applicant or class member not seriously
contemplated; or
 an issue that is the same as or substantially similar to an issue that is –
o currently before SARS in connection with an audit, investigation or other proceeding involving the applicant or a class member or any connected person in relation to the applicant or any class member;
o the subject of a policy document or draft legislation that has been published; or
o subject to dispute resolution under Chapter 9 of the TA Act.
 An application that involves the application or interpretation of a general or specific anti-avoidance provision or doctrine.
 An application that involves an issue –
 that is of a factual nature;
 the resolution of which would depend upon assumptions to be made regarding a future event or other matters which cannot be reasonably determined at the time of the application;
 which would be more appropriately dealt with by the competent authorities of
the parties to an agreement for the avoidance of double taxation;
 in which the tax treatment of the applicant is dependent upon the tax treatment of another party to the proposed transaction who has not applied for a ruling;
 in respect of a transaction that is part of another transaction which has a bearing on the issue, the details of which have not been disclosed; or
 which is the same as or substantially similar to an issue upon which the applicant has already received an unfavourable ruling.
 An application that involves a matter the resolution of which would be unduly timeconsuming or resource intensive.
 An application that requests SARS to rule on the substance of a transaction and
disregard its form.
In addition to the above, an application may also be rejected in respect of an issue identified by SARS and which must be published in the Government Gazette.
There are several reasons for these rejections. The most important reasons are as follows:
 The ATR system is designed to provide taxpayers with certainty in respect of SARS’s view on questions of tax 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 those issues generally do not present a problem. However, some issues are of an inherently or distinctly factual nature.
 SARS must ensure that limited resources are put to the best possible use. For this
reason the ATR system is limited to providing guidance in respect of proposed
transactions that are seriously contemplated at the time the application is filed.
Further, the resolution of an issue may depend upon matters that cannot reasonably be determined at the time the application is filed or upon the tax treatment of another party to the transaction who has not applied for a ruling.
An application in which the applicant fails or declines to provide additional information that has been requested by SARS in connection with the application may be rejected without refunding the application fee imposed under section 81.
Notes:
1. Any example that is given is for informational purposes only and is intended solely to illustrate the types of situations in which these rejections may be applied. Due to the nature of these discretionary rejections, any determination in respect of an actual application must be made exclusively on a case-by-case basis after a careful review of the application itself.
2. It is your responsibility to ensure that any statements made are true and accurate.
3. These statements remain subject to review and verification upon audit.
4. It is also your responsibility to disclose any facts that would likely raise a serious concern in respect of an anti-avoidance rule. If you fail to do so, SARS may reject your application upon the discovery of those facts at any point in the review process. If this occurs, you will remain liable for payment for the work done on the application up to the date of rejection. Application fees paid will not be refunded and any outstanding cost recovery fee incurred up to the date of rejection must be paid.
5. If it is subsequently determined that material statements were not true or accurate, the ruling will be rendered void from the time it was issued in accordance with section 84. For more detailed information in connection with this issue, see 5.2.1.
(a) An application requesting the rendering of an opinion, conclusion or determination regarding the market value of an asset – (section 80(1)(a)(i)
This exclusion would apply to an application that requests or requires a determination –
 of the current market value of assets you own, for example, your home, shares etc;
 of the market value of any financial instrument or other asset for purposes of
determining whether or not a company constitutes a ‘domestic financial instrument
holding company’ or ‘foreign financial instrument holding company’ as defined in
section 41(1) of the Income Tax Act; or
 that an asset has been disposed of at fair market value for purposes of donations tax.
Situations in which this exclusion or refusal may not apply
Generally, the exclusion or refusal does not apply if the application merely contains a statement in respect of the market value of an asset but does not request or require a determination in respect of that matter. Thus, the exclusion or refusal would generally not apply to a situation in which the market value of an asset is relevant to a requirement or prerequisite under a particular statute, but the application does not request or require a ruling in connection with –
 that requirement or prerequisite itself; or
 the actual market value of the asset.
Similarly, the exclusion or refusal would generally not apply where a statement in respect of the market value of an asset merely provides helpful or useful background information in connection with the ruling request.
Example 1: An applicant may request a ruling in connection with a proposed company formation transaction in which the applicant disposes of an asset to a company and becomes entitled, in exchange for that asset, to other considerations in addition to equity shares issued by the company. The issue raised is limited to the treatment of that other consideration. The company formation provisions only apply to transactions in which the market value of an asset exceeds its base cost at the time of the disposal. In this situation, the application may include a statement that this requirement is satisfied or that the market value of the asset will exceed its base cost at the time of the transaction.
(b) An application requesting an opinion, conclusion or determination regarding
the application or interpretation of the laws of a foreign country – section 80(1)(a)(ii)
This exclusion would apply to an application that requests or requires a determination that –
 a company is (or is not) a resident of a foreign country under that foreign country’s rules for determining residency;
 certain periodic payments to be made by a foreign company would (or would not) be subject to a withholding tax imposed by that foreign country; or
 a particular amount that is received by or accrued to a foreign company would (or would not) constitute an item of gross income under the income tax laws of that foreign country.
Situations in which this exclusion or refusal might not apply
This exclusion or refusal does not apply if the application merely contains a statement in respect of a particular issue under foreign law but does not request or require a determination in respect of that matter. Thus, the exclusion or refusal generally would not apply to a situation in which a question of foreign law is relevant to a requirement or prerequisite under a particular statute, but the application does not request or require a ruling in connection with –
 that statutory requirement or prerequisite; or
 that question of foreign law itself.
Similarly, the exclusion or refusal would not apply where a statement in respect of the question of foreign law merely provides helpful or useful background information in connection with the ruling request.
For example, an applicant may request a ruling in connection with the application of rebate carry-forward provisions of section 6quat(1B) of the Income Tax Act in respect of a particular tax imposed by a foreign country. In this situation the applicant may include a statement that the tax in question will not be subject to any right of recovery by any person for purposes of section 6quat(1C).
(c) An application requesting an opinion, conclusion or determination regarding
the pricing of goods or services supplied by or rendered to a connected person in relation to the applicant or class members – section 80(1)(a)(iii)
This exclusion would apply to an application that requests or requires a determination that –
 the price to be charged by the applicant for goods it may sell to a foreign subsidiary would reflect an arm’s length price as contemplated by section 31 of the Income Tax Act;
 the price to be charged by the applicant for services it will supply to a controlled
foreign company owned by it, would reflect an arm’s length price as contemplated by section 9D(9)(b)(ii) of the Income Tax Act; or
 the consideration to be charged by the applicant in connection with a proposed
disposal of an asset to a connected person in relation to the applicant reflects an
arm’s length price as contemplated by paragraph 38(1) of the Eighth Schedule to the Income Tax Act.
In particular, you may not use the ATR system to request an advance pricing agreement or its equivalent.
Situations in which this exclusion or refusal might not apply
This exclusion or refusal does not apply if the application merely contains a statement in respect of the pricing of goods or services but does not request or require a determination in respect of that matter. Thus, the exclusion or refusal would not apply to a situation in which the pricing of goods or services is relevant to a requirement or prerequisite under a particular statute, but the application does not request or require a ruling in connection with –
 that requirement or prerequisite itself; or
 the pricing itself (for example, whether it actually reflects an arm’s length price or the fair market value of an asset or service).
Similarly, the exclusion or refusal generally would not apply where a statement in respect of the pricing merely provides helpful or useful background information in connection with the ruling request.
(d) An application requesting an opinion, conclusion or determination regarding
the constitutionality of any tax law – section 80(1)(a)(iv)
This exclusion also applies to any application that contains or includes a statement or assumption that a tax law is unconstitutional. There are no exceptions to this rule.
(e) An application requesting an opinion, conclusion or determination regarding a
proposed transaction that is hypothetical or not seriously contemplated section 80(1)(a)(v) ‘Hypothetical’ transactions would include ones that are merely conjectural, theoretical or proposed simply for possible further investigation or consideration. For example, this exclusion would apply to any application that –
 indicates that the applicant is considering a possible investment in the film industry at some future date, but has no specific plans to do so at present and is simply interested in the potential tax consequences of doing so;
 relates to a very general possible transaction, but none of the other parties have
been identified and all or most of the specific terms of the transaction are vague or
subject to substantial uncertainty; or
 indicates that the applicant is merely ‘thinking about’ or ‘considering’ a possible
transaction or course of action but has no definite plans to do so at present.
There are no exceptions to this rule.
(f) An application requesting a ruling on a matter which can be resolved by SARS
issuing a directive under the Fourth or Seventh Schedule of the Income Tax Act – section 80(1)(a)(vi)
Matters can be resolved more easily and speedily by the issuing of a directive than through the ATR process. Directives are also binding on the Commissioner and it is not expected of taxpayers to pay a fee for a directive. Because of the factual nature of application for directives, ATR applications may also be rejected based on section 80(1)(d)(i).
(g) An application relating to the duty of an employer to determine whether a
person is an independent contractor, labour broker, or personal service provider – section 80(1)(a)(vii)
This issue is both fact and resource intensive. In addition, it is only the employer who has full knowledge of those facts. There are no exceptions to this rule.
(h) An application that is submitted for academic purposes – section 80(1)(a)(viii)
This exclusion would apply to any application submitted by a –
 professor in connection with a scholarly article on an aspect of the VAT Act;
 tax practitioner in connection with the preparation of a scheme to minimise the tax liability of the tax practitioner’s clients in a particular industry;
 student in connection with a thesis.
There are no exceptions to this rule.
(i) An application that presents, contains, or raises a frivolous or vexatious
issue –section 80(1)(b)(i) Frivolous issues would include questions with answers that are completely obvious under the plain language of the statute, for example, an application by a resident requesting a ruling that ordinary wages paid as consideration for services performed in South Africa are gross income. Vexatious issues would include a request for a determination that a particular tax law is unfair and should be repealed (or that, despite its applicability to the proposed transaction, it should not be enforced because of the hardship which doing so would entail to the applicant). There are no exceptions to this rule.
(j) An application that presents, contains, or raises alternative courses of action by the applicant (or requesting an opinion, conclusion or determination regarding such alternative courses of action) – section 80(1)(b)(ii) This exclusion would apply to an application that sets forth various ways or methods for entering into or carrying out a proposed transaction and seeks, directly or indirectly, SARS’s
advice in respect of how the proposed structure should be arranged. It would also apply to an application that sets forth a proposed course of action but further requests, in the event of an adverse ruling, that SARS advises or suggests different alternatives that would remedy the problem(s). The function of the ATR system is to provide binding rulings on the specific tax treatment proposed by the applicant on the proposed transaction. It does not provide applicants with tax or legal advice in respect of how to structure possible transactions.
Situations in which this exclusion or refusal might not apply (guidance in respect of
consequential issues in the event of an adverse ruling on a primary issue)
In certain circumstances, an applicant may be committed to pursuing a business transaction even in the event of an adverse ruling in connection with a particular issue. In these situations, an adverse ruling in respect of a primary or threshold issue is likely to have significant implications and may raise new or different issues in connection with the proposed transaction. In these limited circumstances, the exclusion or refusal would not apply to an application that seeks a ruling in connection with such issues.
Example 2: A company is planning to begin a joint venture in a foreign country and wants to pursue this venture through a particular type of entity organised under the laws of that country. In this context, the applicant may request a ruling that the foreign entity would be a ‘company’ for purposes of the Income Tax Act and then request a ruling in respect of the application of the definition of the term participation rights’ in section 9D(1) to the applicant’s ownership interest in that entity. In addition, in the event of an adverse ruling in respect of this primary issue, the applicant may, in the alternative, request rulings that the foreign entity would be a partnership and that the applicant would be a partner subject to the provisions of section 24H. This exception only applies to situations in which the applicant is firmly committed to pursuing the course of action to which the primary or threshold issue relates. Thus, for example, the exception would not apply to an application if it indicates that the applicant intends to use a particular foreign entity for a joint venture in another country, but only if that entity is classified as a partnership for South African income tax purposes, and that, in the event of an adverse ruling, it is considering the use of entities in connection with the transaction, depending upon the South African tax treatment of each one.
(k) An application that presents, contains, or raises an issue that is the same as or
substantially similar to issues which are potentially or actually in dispute section 80(1)(b)(iii)
SARS may reject an application if it requests or requires a determination in respect of the following:
(i) An issue that is currently before SARS in connection with an audit, examination, investigation or other proceeding involving the applicant or a connected person in relation to the applicant or a class member section 80(1)(b)(iii)(a)
This is a material fact that must in any event be disclosed in the application. No
exceptions to this rule will be allowed. It is not appropriate for the ATR system to
serve as an alternative dispute resolution channel. This issue is discussed in more detail in 4.2.6.
(ii) An issue that is the subject of a policy document or draft legislation that has
been published – section 80(1)(b)(iii)(bb)
SARS will not accept an application that requests a ruling in connection with the
application or interpretation of any proposed legislation before its promulgation.
In addition, SARS will not accept applications that request or require rulings in
respect of existing tax laws that are the subject of proposed amendments following
the release of those amendments for comment, either to the public generally or to
industry groups. If a proposed amendment is to be retrospective in effect,
applications will not at all be accepted in respect of proposed transactions that would be entered into or carried out subsequent to the proposed effective date of that amendment.
Situations in which this exclusion or refusal might not apply (specific cases of
compelling need) In specific cases of compelling need, SARS may agree to accept an application that requests a ruling in respect of current law following the release of a policy document or proposed amendment for comment if –
 the proposed transaction will be entered into or carried out before the anticipated effective date of the policy or proposed amendment; and
 the request seeks a ruling solely in respect of the application or interpretation of the current law.
Determinations will be made on a case-by-case basis.
Example 3: An applicant may request a ruling in respect of the treatment of certain aspects of a proposed black economic empowerment (BEE) transaction. A proposed amendment to the governing tax law has been released for comment, but the proposed transaction would be completed before the anticipated effective date of that amendment. The main financing party will not commit to provide financing for the transaction unless a favourable ruling is received in respect of this issue. The applicant seeks a ruling solely in respect of the application or interpretation of the current law. In these circumstances SARS would consider accepting the application.
(iii) An issue that is subject to dispute resolution under Chapter 9 of the TA Act
section 80(1)(b)(iii)(cc)
SARS may reject an application if it raises or presents an issue that is the same as or
substantially similar to an issue currently pending before the courts. There are no exceptions to this rule.
(l) An application requesting the application or interpretation of any general or
specific anti-avoidance provision or doctrine – section 80(1)(c)
There are several important reasons for this rejection. One is that the application of these anti-avoidance rules is often extremely fact-intensive and cannot be undertaken until a transaction has actually been entered into or carried out. Another is the danger that the ruling process might be abused in an attempt to probe for loopholes in these rules or to develop ‘roadmaps’ for new abusive avoidance schemes.
In practice, this rejection would be applied in two specific situations. It involves any
application –
 that requests or requires a ruling specifically in respect of the application or
interpretation of an anti-avoidance rule itself; or
 in respect of a proposed transaction that would raise serious concerns under an antiavoidance rule if it were to be entered into or carried out in the manner described in the application.
Example 4: An applicant requests a ruling as to whether or not a proposed multi-step transaction would be considered an ‘arrangement’ for purposes of sections 80A or 103(2) of the Income Tax Act.
Example 5: An applicant requests a ruling in respect of how the ‘abnormality requirement’ in section 80A of the Income Tax Act would be interpreted and applied in connection with a proposed complex series of transactions resulting in a significant tax benefit.
Example 6: An applicant requests a ruling as to whether or not the obtaining of a tax benefit would be the sole or main purpose of a proposed transaction for purposes of section 80A of the Income Tax Act.