Tanzania in International Tax Law: Hot-button issues of private tax rulings

Tax uncertainty created by recurrent tax reforms and myriad interpretations of the tax law may depress investment. In most countries, taxpayers can achieve certainty regarding the tax consequences of a planned business transaction through the advance tax rulings system. And Tanzania is no exception.

This article considers the advance tax rulings system in the form of private rulings issued by the Commissioner General of the Tanzania Revenue Authority (TRA). 

Section 3 of the Tax Administration Act, 2015 (‘TAA 2015’) defines a private ruling as “a decision by the Commissioner General on tax issues raised by a person.” Prior to entering into or carrying out a transaction, the taxpayer makes a written request to the Commissioner General for a private ruling regarding the interpretation or application of a provision or provisions of the relevant tax law/s to a specific contemplated transaction.

This is premised on the belief that the Commissioner General is au fait with the tax laws administered and enforced by the TRA and he has the knowledge, skills and understanding of the laws that a taxpayer can rely on the private ruling.

The ruling binds the Commissioner General in relation to the transaction for which it is issued and when the conditions stipulated under section 11(4)(a)-(c) of the TAA 2015 are met.

Typically, a private tax ruling is personal to the taxpayer to whom it is issued. It cannot bind the Commissioner General as against other taxpayers, even if the same business transaction is contemplated (section 11(4)). This provision appears to be completely contradictory of section 9(1) of the TAA 2015 on issuance of practice notes “with a view to ensure consistency in the administration of tax laws and to provide guidance to persons affected by such laws”.

The Commissioner General may refuse an application for a private ruling (section 12(1)), however, the reasons for such refusal must be notified to the taxpayer (section 12(2)). The reasons may include the existence of a tax decision affecting the transaction which is the subject matter of the private ruling request; the existence of a practice note that adequately covers the transaction; or the failure to provide sufficient information to make the ruling. 

Other reasons may be that the application for the private ruling is frivolous or vexatious (in other words, that the application is very noticeably groundless and faulty that it cannot possibly succeed); or the existence or pendency of an investigation of the applicant’s tax affairs concerning the transaction.

In light of the above, it is prudent for domestic and international investors seeking private rulings on particular business transactions to consult with their local tax lawyers or advisers to minimise the chances of refusal.

One may ask, “Is the refusal by the Commissioner General of the TRA to issue a private ruling objectionable and appealable?

Section 51(1) of the TAA 2015 provides that “a person who is aggrieved by a tax decision made by the Commissioner General, may object the decision…” This raises the question of whether the refusal to issue a private ruling constitutes a tax decision within the meaning of section 50 of the TAA 2015?

Subsection 1 of that provision reads: “The Commissioner General may, subject to subsection (2), make any tax decision including assessment or other decision or omission on a matter left to the discretion, judgement, direction, opinion, approval, consent, satisfaction or determination of the Commissioner General under a tax law that directly affects a person.”

Therefore, a tax decision may include a refusal to issue a private ruling. If that be the case, an applicant may file an objection against the refusal under section 51 of the TAA 2015 and, if aggrieved by the objection decision, the applicant may appeal to the Tax Revenue Appeals Board in accordance with the relevant tax dispute adjudication provisions of the law.

Investors like stability and tax certainty because it helps them to formulate investment narratives. Yet under section 14(1) of the TAA 2015, “The Commissioner General may, by notice in writing, revoke a private ruling, in whole or in part.”

Most investors in Tanzania are concerned about the tax consequences of revoking a private ruling and they seldomly ask: What happens to the events that took place before the revocation? Would the investor-taxpayer be condemned to pay additional tax, penalties and interest for having relied on the private ruling?

These are not easy questions to answer; nevertheless, a careful and absorptive reading of sections 15-22 of the TAA 2015 may provide some guidance. 

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Paul Kibuuka ([email protected]), a tax and corporate lawyer and tax policy analyst, is the CEO of Isidora & Company and the Executive Director of the Taxation and Development Research Bureau.