Advance Tax Rulings in Perspective: A Theoretical and Comparative Analysis

(2014) 20(4) New Zealand Journal of Taxation Law and Policy 362-389

28 Pages Posted: 21 Feb 2015

See all articles by Benjamin Alarie

Benjamin Alarie

University of Toronto - Faculty of Law; Vector Institute for Artificial Intelligence

Kalmen H. Datt

University of New South Wales (UNSW)

Adrian J. Sawyer

University of Canterbury

Greg Weeks

ANU Law School

Date Written: 2014

Abstract

Advance tax rulings are an increasingly common feature of mature income tax systems throughout the world. The Organisation for Economic Co-operation and Development’s (OECD’s) work demonstrates that there has been a trend from 1990 to 2013 among OECD member countries to adopt advance tax rulings regimes. The international expansion of advance tax rulings seems both intuitively desirable and salutary. Upon deeper reflection, both theoretically and empirically, however, there is a puzzle. Why are advance tax rulings regimes so popular?

This article makes two contributions to our understanding of advance tax rulings. The first contribution is to highlight that the increased pervasiveness of advance tax rulings internationally is potentially puzzling in the light of Givati’s analysis, which suggests that the balance of strategic considerations facing taxpayers systematically disfavours taxpayers seeking advance tax rulings. Theory thus appears – at least as a preliminary matter – to be out of step with the observed rulings practices tracked by the OECD. We then consider how to resolve the puzzling popularity of advance tax rulings. We find the increased pervasiveness of advance tax rulings regimes should not be entirely surprising despite the apparent conflict with economic theory.

To complement the arguments from theory, we offer some tentative evidence that advance tax rulings may not be of any consequence economically speaking. Empirical analyses of panel data of rulings practices published by the OECD do not show any reliable correlations of observed practice with social or economic fundamentals. This finding is consistent with the puzzle posed by economic theory, which suggests that rulings regimes are not likely to be particularly important in practice. This can arise in part due to the relatively slow process for issuing advance rulings compared to the timeframe facing taxpayers to make key business decisions. From an optimistic perspective, advance tax rulings are best regarded as serving an expressive function in support of the rule of law and sound tax administration. Less generously, a cynic might be tempted to say that the resolution to the puzzle posed by the incongruence between theory and practice may be that the best reason to have a binding rulings regime may be because just about everyone else has one.

Keywords: advance tax rulings, tax administration, public finance

Suggested Citation

Alarie, Benjamin and Datt, Kalmen H. and Sawyer, Adrian J and Weeks, Greg, Advance Tax Rulings in Perspective: A Theoretical and Comparative Analysis (2014). (2014) 20(4) New Zealand Journal of Taxation Law and Policy 362-389. Available at SSRN: https://ssrn.com/abstract=2567574

Benjamin Alarie (Contact Author)

University of Toronto - Faculty of Law ( email )

Jackman Law Building
78 Queen's Park
Toronto, Ontario M5S 2C5
Canada
416-946-8205 (Phone)
416-978-7899 (Fax)

HOME PAGE: http://www.law.utoronto.ca/faculty-staff/full-time-faculty/benjamin-alarie

Vector Institute for Artificial Intelligence ( email )

Kalmen H. Datt

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Adrian J Sawyer

University of Canterbury ( email )

Ilam Road
Christchurch 8140
New Zealand

Greg Weeks

ANU Law School ( email )

Canberra, Australian Capital Territory 0200
Australia
6125 5420 (Phone)

HOME PAGE: http://https://law.anu.edu.au/people/greg-weeks

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