Over the last two weeks the Commissioner General of Rwanda Revenue Authority issued and made public a tax ruling on article 15 of the law no 37/2012 of 09/11/2021 establishing value added tax as modified and complemented to date (the VAT law) dealing with (among other things) conditions to be fulfilled for a taxpayer to get a VAT refund (the recent ruling). 

One of the conditions under the recent ruling which elicited a mixed bag of reactions among the members of the tax fraternity is the requirement that the input VAT (putting the taxpayer in a VAT refund position) must have been declared and paid by the supplier to the public treasury. This then begs the question of whether advance tax rulings have any force law, and if the answer is affirmative, who is bound by them. This article shall (without delving into the merits of the recent ruling) seek to consider the legal nature of advance tax rulings in Rwanda. 

The issue of advance tax rulings is dealt with under article 9 of law n° 026/2019 of 18/09/2019 on tax procedures (tax procedures law) which provides that, on request or by his or her own initiative, the Commissioner General issues an advance tax ruling.  While the tax procedure law 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”) clearly indicates that an advance tax ruling is document interpreting a specific provision of tax legislation and how it should be applied. 

An advance tax ruling may be public or private. Public rulings are issued by the Commissioner General on his/her own initiative and provides the public with the tax administration position on the way in which tax law applies to a person or class of persons in relation to an arrangement or a class of arrangements. On the other hand, private tax rulings are only issued upon request by a taxpayer and their application is limited to the applicant taxpayer and specific arrangement the taxpayer has entered into or is contemplating to enter into. 

They (advance tax rulings) are different from the rules issued by the Commissioner General where tax legislation provides that certain aspects of tax law shall be determined by the rules of the Commissioner General. The latter are known as ‘delegated’ or ‘subsidiary legislation’ and obviously have the force of law. 

Whether advance tax rulings have the force of law or not, their importance cannot be underrated 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 real legal nature of advance tax rulings? 

Rwandan tax laws are not prescriptive on whether advance tax rulings have the force of law nor has the same issue yet been considered by Rwandan courts. However, courts (including apex courts) in other jurisdictions have entertained the same issue and their reasoning is quite compelling. For instance the Constitutional Court of South Africa dealt with a similar issue when it was invited to decide on the binding force of interpretative notes issued (similar to public tax rulings) by South African Revenue Service (SARS) in the case of Marshall NO and Others v Commissioner for SARS (CCT208/17) [2018] ZACC decided in 2018 where it held as follows: 

Why should a unilateral practice of one part of the executive arm of government play a role in the determination of the reasonable meaning to be given to a statutory provision? It might conceivably be justified where the practice is evidence of an impartial application of a custom recognised by all concerned, but not where the practice is unilaterally established by one of the litigating parties. In those circumstances it is difficult to see what advantage evidence of the unilateral practice will have for the objective and independent interpretation by the courts of the meaning of legislation, in accordance with constitutionally compliant precepts. It is best avoided. 

The above suggests that advance tax rulings do not bind taxpayers, and one has less trouble arguing that the legal backing of the ruling system under article 9 of the tax procedures law only serves the purpose of ensuring that the tax administration cannot depart from the position it communicated in the ruling that had not been subsequently revoked by another ruling. 

Nevertheless, much as it may be validly argued that advance tax rulings do not have the force law, and if anything, they can only bind the tax administration, owing to the complexity and frequent amendments of tax laws, consequences of not complying with tax laws, and costs associated with tax disputes, in practice, tax rulings tend to be followed by taxpayers and their advisors giving them (advance tax rulings) the status of de facto law. This is exacerbated by the fact that it is not clear from the law whether or not advance tax rulings can be challenged before courts absent a tax assessment or any other decision taken by the tax administration based on the tax ruling at issue. 

Wrapping up, advance tax rulings are one of the features of a good tax system as they reinforce certainty of tax laws. While they do not have the force of law and can only bind the tax administration, they may (in practice) acquire the status of law, and significantly impact taxpayers in case a given ruling does not rightly portray what should be the real meaning of a given piece of tax legislation. In this vein, the tax administration should avoid the so-called "pro-revenue bias” (whether perceived or real) by ensuring that rulings do not depart from the provisions of the law they seek to interpret and apply, and should always take into consideration positions already taken by courts of law (mainly the higher ones) who are the final arbiters of ambiguities in the law. 

The views contained herein are those of the author.

The writer is a corporate commercial and tax lawyer, and Partner at ENSafrica Rwanda.