QB 08/03: Application for a private ruling or product ruling on an issue dealt with in a mutual agreement made under a Double Tax Agreement - Tax Administration Act 1994, sections 91E(4)(D)(ii) and 91F(4)(D)
We have been asked to clarify the process that the Commissioner will follow when an application for a private ruling or product ruling is sought in relation to a matter that has been dealt with in a mutual agreement between competent authorities under a Double Tax Agreement (DTA).
The Commissioner has no authority to give a ruling on the interpretation or application of a mutual agreement and the Commissioner will not give a ruling on an issue if the issue is within the scope of an existing mutual agreement.
The Commissioner, or his authorised representative, is the New Zealand competent authority under New Zealand's DTAs. The competent authority of the other party to a DTA is a person who holds the equivalent position in the other Contracting State. (Each of the parties to a DTA is a Contracting State.)
All New Zealand's DTAs contain a provision that is substantially the same as Article 25 of the OECD Model Double Tax Convention.
Under Article 25(1) of the Model Double Tax Convention, people who consider that the actions of one or both of the Contracting States will result in taxation "not in accordance with the provisions of the Convention" may present their cases to the competent authority of the Contracting State of which they are a resident or, if the case comes under Article 24(1) (the non-discrimination article), to the competent authority of the Contracting State of which they are a national. The competent authority must endeavour (if the competent authority considers that the objection is justified and the competent authority is not able to arrive at a satisfactory solution) to resolve the case by mutual agreement with the competent authority of the other Contracting State: Article 25(2). Article 25(3) requires the competent authorities of the Contracting States to endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention: Article 25(3) first sentence. Article 25(3) also provides that the competent authorities may consult together "for the elimination of double taxation in cases not provided for in the Convention": Article 25(3) second sentence.
Article 25(4) provides that the competent authorities may communicate with each other directly, including through a joint commission consisting of themselves or their representatives, for the purpose of reaching an agreement in terms of Article 25.
Agreements made under the procedures outlined in Article 25 are usually referred to as "mutual agreements".
The Commissioner is authorised to make binding rulings on how a taxation law applies or would apply: sections 91D(1), 91E(1) and 91F(1) of the Tax Administration Act 1994 (TAA). A mutual agreement is not a "taxation law" as defined in section 91B of the TAA, as it is not a provision in any of the statutes specified in section 91C(1) of the TAA. Therefore, the Commissioner does not have the power to make a binding ruling on the interpretation or application of a mutual agreement.
Sections 91E(4)(d)(ii) and 91F(4)(d) of the TAA prevent the making of a private or product ruling in respect of a matter that is being dealt with, or in the Commissioner's opinion should be dealt with, by one or both competent authorities of the parties to a DTA. Therefore, in considering an application for a binding ruling, the Commissioner must determine whether an issue relating to the interpretation of a DTA is being dealt with or should be dealt with by the competent authority, rather than in a ruling. Sections 91E(4)(d)(ii) and 91F(4)(d) contemplate that in some circumstances the interpretation of a DTA should be dealt with by the competent authority.
A matter "is being dealt with" by the competent authority where the taxpayer applying for the ruling has also presented a case for consideration by the competent authority under the mutual agreement procedure provisions in a DTA or where, at the time a binding ruling is sought, the competent authority is in the process of negotiating a more general mutual agreement on the matter. Consistent with the purpose underlying the legislation, if the application for a binding ruling relates to a matter that is within the scope of a mutual agreement already entered into by the Commissioner acting as the competent authority, it is considered that the matter should continue to be dealt with by the competent authority and not in the context of a binding ruling application.
Therefore, the Commissioner will not give a binding ruling if a mutual agreement exists and the issue in respect of which a binding ruling is sought is within the scope of the mutual agreement.