Action 5: Exchange of Tax Rulings (ETR)

The aim of Action 5 is to improve transparency, which involves the requirement for members of the BEPS Inclusive Framework to introduce a framework for compulsory spontaneous exchange of information on certain rulings.  

Full details of the ETR framework are included within Chapter 5 of the Action 5: 2015 Final Report.

A ruling is defined in the framework as being 'any advice, information or undertaking provided by a tax authority to a specific taxpayer or group of taxpayers concerning their tax situation and on which they are entitled to rely.'

A ruling can be requested in advance of a transaction but may be requested after the transaction. An adjustment to taxable profits made during an enquiry into a company tax return is not a ruling falling within the ETR framework, unless this adjustment has an impact on future profits.

Rulings in Scope of ETR

The ETR framework states that compulsory spontaneous exchange is required for taxpayer-specific rulings falling within one of these 6 categories:

  • Rulings relating to preferential regimes
  • Cross border unilateral advance pricing arrangements (APA) or other unilateral transfer pricing rulings
  • Rulings giving downward adjustment to profits
  • Permanent Establishment (PE) rulings
  • Conduit rulings
  • Any other type of ruling where FHTP agrees in future there would be BEPS issues

Isle of Man income tax legislation does not support the making of rulings in all of the 6 categories.

As a general rule, exchange of information on rulings for the six categories needs to take place with:

  • The countries of residence of all related parties with which the taxpayer enters into a transaction for which a ruling is granted or which gives rise to income from related parties benefiting from a preferential treatment (this rule also applies in a PE context)
  • The residence country of the ultimate parent company and the immediate parent company

The exchange requirement for each category of ruling is outlined in table 5.1 on page 53 of the Final Report.

The compulsory spontaneous exchange framework requirement in relation to rulings is divided into 'past rulings' and "future rulings.'

The Assessor, as Competent Authority, exchanged details of "past rulings" with all relevant countries before 31 December 2017.  

A 'past ruling' was:

  • A ruling made between 1 January 2015 to 1 April 2017, or
  • A ruling made between 1 January  2012 and 1 January 2015, and still in effect on 1 January 2015

Any rulings made after 1 April 2017 are 'future rulings', and these must be exchanged with all relevant countries not later than 3 months after they become available to the Competent Authority.

The Isle of Man is using its existing framework of international agreements that permit the spontaneous exchange of information, to exchange reportable rulings with other BEPS jurisdictions.

Ruling Applications

What is a Ruling?

As stated above, a ruling is defined in the BEPS framework as being 'any advice, information or undertaking provided by a tax authority to a specific taxpayer or group of taxpayers concerning their tax situation and on which they are entitled to rely.'

A ruling can be requested in advance of a transaction but may be requested after the transaction.

Applying for a Ruling

The Assessor will accept rulings applications from companies incorporated or registered in the Isle of Man and from companies incorporated or registered outside the Isle of Man.

In addition to applications for rulings which are in scope for exchange under Action 5 (see above), the Assessor will also accept applications from companies for other types of rulings that are not within the current scope of ETR.

Any company seeking a ruling from the Assessor should complete a ruling application form, which should be submitted with all necessary information to support the consideration of the ruling applied for.

All applications for the Land Development Tax Holiday and elections to pay income tax at 10% made after 6 April 2017 must be accompanied by a rulings application form R244.

All Rulings applications will be dealt with by a Senior Technical Officer.

All rulings applied for will be allocated a ruling reference number that will be confirmed following receipt of the application form.

How long a Ruling will last

A ruling will be issued covering a maximum period of 4 years, or for the period specified on the application if this is shorter.

The ruling must be renewed in order to continue beyond the 4 year maximum period.

A ruling can also be amended if the circumstances or facts specified at the outset change.

If the ruling was within scope for ETR, any subsequent renewal or amendment will also be in scope.