In the past two weeks, the Commissioner General of the Rwanda Revenue Authority has issued and made public a tax decision relating to Article 15 of Law No. 37/2012 of 09/11/2021 establishing tax on value added as amended and supplemented to date (the VAT law) dealing with (among other things) the conditions to be met for a taxpayer to obtain a refund of VAT (the recent judgment).
One of the conditions of the recent ruling which has received mixed reactions among members of the tax fraternity is the requirement that input VAT (placing the taxpayer in a VAT refund situation) must have been declared and paid by the supplier to the public treasury. This then raises the question of whether tax rulings have the force of law and, if the answer is yes, who is bound by them. This article aims (without delving into the substance of the recent ruling) to examine the legal nature of tax rulings in Rwanda.
The issue of advance rulings in tax matters is governed by Article 9 of Law No. 026/2019 of 18/09/2019 on tax procedures (tax procedures law) which provides that, upon request or on its own initiative , the General Commissioner issues an advance tax ruling. Although the Tax Procedures Act does not define an advance tax ruling, the Kinyarwanda version of the same law (which refers to advance tax rulings as “inyandiko zisobanura amategeko y’imisoro”) makes it clear that an advance tax ruling is a document interpreting a specific provision of tax law and how it should be applied.
An advance tax ruling can be public or private. Public rulings are issued by the Commissioner-General on his own initiative and provide the public with the tax administration’s position on how tax law applies to a person or class of persons in relation to a scheme or arrangement. category of devices. On the other hand, private tax rulings are issued only at the request of a taxpayer and their application is limited to the requesting taxpayer and the specific arrangement that the taxpayer has entered into or plans to enter into.
They (advance tax rulings) are different from rules issued by the Commissioner General where the tax law provides that certain aspects of tax law are determined by the rules of the Commissioner General. The latter are called “delegated legislation” or “subsidiary legislation” and obviously have the force of law.
Whether or not advance tax rulings have the force of law, their importance cannot be underestimated as they give taxpayers certainty as to how the law will be interpreted and applied (at least by the tax administration ) for the purpose of assessing tax liability, which is an important feature given the complexity of tax laws. But what is the true legal nature of tax rulings?
Rwandan tax laws do not specify whether advance tax rulings have the force of law and the same issue has not yet been considered by Rwandan courts. However, courts (including supreme courts) in other jurisdictions have considered the same issue and their reasoning is quite compelling. For example, the Constitutional Court of South Africa dealt with a similar issue when asked to rule on the binding force of interpretative notes issued (similar to tax rulings) by the South African Revenue Service (SARS) in the case of Marshall NO and others v. Commissioner for SARS (CCT208/17)  The ZACC decided in 2018 where it was held as follows:
Why should a unilateral practice by a part of the executive branch of government play a role in determining the reasonable meaning to be given to a legislative provision? It could possibly be justified when the practice testifies to the impartial application of a custom recognized by all, but not when the practice is established unilaterally by one of the parties to the dispute. In these circumstances, it is difficult to see what advantage the evidence of unilateral practice will have for the objective and independent interpretation by the courts of the meaning of the legislation, in accordance with the precepts consistent with the Constitution. It is better to avoid it.
The foregoing suggests that advance tax rulings are not binding on taxpayers, and it is less difficult to argue that the legal basis for the ruling system provided for in Article 9 of the Tax Procedures Act serves only to guarantee that the tax administration cannot deviate from the position it communicated in the judgment which had not subsequently been revoked by another judgment.
Nevertheless, even if it can validly be said that advance tax rulings do not have the force of law and, on the contrary, that they can only bind the tax administration, due to the complexity and frequent changes in tax laws, the consequences of non-compliance with tax laws, and the costs associated with tax litigation, in practice tax rulings tend to be followed by taxpayers and their advisers giving them (advance tax rulings ) the status of de facto straight. This situation is exacerbated by the fact that the law does not specify whether or not advance tax rulings can be challenged in court in the absence of a tax notice or any other decision taken by the tax administration on the basis of of the tax ruling in question.
In summary, advance tax rulings are one of the hallmarks of a good tax system because they increase the certainty of tax laws. Although they do not have the force of law and can only bind the tax administration, they can (in practice) acquire the status of law and have a significant impact on taxpayers in the event that a given decision does not describe correctly what the true meaning of a particular tax law should be. Along these lines, the tax administration should avoid so-called “revenue bias” (whether perceived or real) by ensuring that decisions do not deviate from of the law they seek to interpret and apply, and should always take into account the positions already taken by the courts (mainly the highest ones) who are the final arbiters of the ambiguities of the law.
The opinions expressed here are those of the author.
The author is a commercial and corporate tax lawyer, and associate at ENSafrica Rwanda.