In November 2018, the Internal Revenue Department introduced a new initiative to provide taxpayers with greater certainty regarding tax laws and to advise taxpayers how IRD will administer the tax laws for which it is responsible.
For some time, IRD has received complaints from taxpayers that aspects of the tax law are ambiguous, or that taxpayers are uncertain about how IRD will apply the tax law because of inconsistency of practice among different tax offices. This uncertainty creates difficulties for taxpayers, raises the costs of doing business and can ultimately discourage investment. To provide taxpayers with greater certainty, IRD has developed a new process intended to ensure consistency of approach among tax officials.
New IRD Process
IRD has created a Technical Review Committee (TRC) to ensure that tax technical issues are properly considered, and that consistent guidance is provided to taxpayers. This committee meets every two months to consider issues that have been raised by IRD offices when those issues require clarification or guidance. Typically, the referring office prepares a memorandum explaining the issue and its significance, describes the relevant law and policy, and proposes a variety of options for dealing with it. These issues are circulated in advance of the TRC meeting, debated vigorously, and recommendations are provided by the TRC, with the final decision being made by the Director General.
New IRD Communication
In the past, IRD has prepared Notifications, Directives or Letters of Instruction to provide guidance to taxpayers or promulgate rules. However, frequently, other forms of communication may be more appropriate for taxpayers. That is because Notifications, Directives or Letters of Instruction are statements of what the law or practice is, without context or explanatory narrative. Sometimes Notifications can introduce new tax policies, requiring the endorsement of the Government. On many occasions however, what is required is not a new policy, but an explanation of existing law and how it applies. IRD has therefore developed two (2) new forms of publications to help provide guidance to taxpayers, based on the decisions of the TRC.
Interpretation Statements are issued where taxation law exists and IRD considers that providing an explanation of how it will interpret aspects of that law can assist taxpayers and their representatives.
Practice Statements are issued where there is no immediate law governing IRD, but there may be other legislation or developments which IRD considers it should note and take account of in determining its administrative practices.
These communications do not create new policies. Their purpose is simply to allow IRD to provide more detailed guidance to taxpayers. They explain aspects of existing tax laws. They include background material explaining the issue and placing it in the context of the applicable law and policy, and they supply examples of how IRD will interpret the law (Interpretation Statements) or the practice that IRD will adopt (Practice Statements). They are less formal and are intended to be easier to understand.
These statements are not binding on taxpayers as they simply provide guidance on IRD’s approach to the law and other related matters. These statements are binding on all IRD staff to provide taxpayers and their representatives with increased certainty.
These statements will be periodically published at this location on the IRD website. They will not be circulated or available through other channels. This is in keeping with IRD reforms which see it making greater use of electronic publication and transmission opportunities made possible by technology as part of its current Reform Journey: A Plan for Mobilizing Domestic Revenue 2017-18 to 2021-22.
Internal Revenue Department