Inland Revenue (IR) has long been accused of building up its own body of law that has been largely inaccessible to the public (including tax advisors) and there have been many calls from the tax industry for IR to publish this body of law. With this in mind, IR has announced in the February Tax Information Bulletin that it will begin to publish technical decision summaries of its adjudication and private rulings reports. IR states that publication of technical decision summaries will help strengthen the integrity of the tax system and will help to achieve greater transparency around tax technical information.
IR will publish technical summaries of its adjudication reports from mid-2021 and its private rulings reports from the latter half of 2021 for ruling applications received on or after 1 June 2021. Publication of these summaries is expected to occur within three months of the date that the final technical decision was made.
IR states that each summary will contain the 'relevant reasons' for the Commissioner's decision, will preserve the customer's identity and protect sensitive information and, importantly, will include a disclaimer that the summary is not binding. This disclaimer is intended to serve as a reminder that summaries cannot be relied on by taxpayer for other similar transactions.
IR intends to publish summaries of most technical decisions, with limited exceptions (for example, where the confidentiality of the taxpayer cannot be maintained, where the decision will become the subject of a public statement or where the decision is subject to a formal escalation, among other things).
Summaries will effectively be redacted through the exclusion of certain transaction details to preserve confidentiality of commercially sensitive transactions. The applicant taxpayer will be provided with a draft copy of the summary and will have one month to comment on commerciality or sensitivity issues in the summary.
It is commendable of IR to start publishing what some have referred to as its 'secret body of law'. However, this will not be a panacea that addresses all concerns, and, in fact, may well give rise to new concerns for taxpayers or tax advisors alike. One such concern that immediately comes to mind is whether publication of these summaries will result in more decisions, particularly borderline decisions, being made in favour of the Commissioner.
Publication of summaries of a technical decision are also unlikely to address concerns that certain decisions are being made not because they are the right legal decision, but for other reasons such as other policy considerations.
It is unlikely that the legal analysis from these summaries will be of immediate or even perhaps future use to the actual applicant as it will come after IR's decision on their application has already been made. In addition, parties to an adjudication already receive a copy of the final adjudication report so a summary of that report will be of very little use at all to them.
Individual summaries will also have limited application to transactions being undertaken by other taxpayers. That is because, although they will likely provide useful guidance (or indicate potential pressure points), technical decision summaries will not provide an ultimate or binding answer, even for a transaction that is almost identical to one set out in a summary. This is because, as noted by IR, the summaries are not binding. Each new application will be considered on its own merits and will not be given an answer merely based on a decision made in another application.
Instead, the usefulness of these technical decision summaries is more likely to accrue over the long term as advisors begin to get a bigger picture of the body of law that Inland Revenue relies on. We note that IR has stated that the summaries will include the 'relevant reasons' for the decision. This means that the discussion of some of the legal analysis in what as seen as a borderline decision may be left out of some summaries. This increases the risk of relying on these summaries even if you are the relevant party to the transaction and undertake a substantially similar transaction in the future.
Initially it seems like releasing IR's body of law is a good idea, although it will take some time for the body of law to build up through publication and to be of any great use to taxpayers or tax advisors. However, we hope creation of the technical decision summaries does not slow down either the binding rulings or adjudication process. We also hope that it does not curtail some of the decision-making on borderline calls. If it did, this would ultimately compromise the binding rulings system and would encourage taxpayers to find other ways to mitigate tax risk (such as through insurance) or may even create an environment of additional risk taking in some cases.
Finally, we think that it would be prudent to set a fixed time to review this new publication system in several years to consider if and how it has changed taxpayer or IR behaviour and taking into account any impact it has on that behaviour, whether to continue with publication of these summaries. There is also likely to be a significant cost burden of creating these summaries and a cost/benefit analysis should also be carried out if and when any review of the system takes place.
For now, we watch and wait with great interest.
More details on the technical decision guidelines and their creation/publication can be found here. If you would like to discuss these changes or your individual tax circumstances in more detail, please contact a member of our tax team.