Chapter 5 - Mass-marketed and Publicly Promoted Scheme Rulings
5.1 A product ruling sets out Inland Revenue’s interpretation of how the tax law applies to an arrangement that is likely to be entered into with a number of people on identical terms. The product ruling is intended to be available when a private ruling cannot be made because it is not practicable to identify all the taxpayers that may enter into the arrangement.
5.2 One of the conditions when applying for a product ruling is that the applicant must intend to be a party to the proposed arrangement (section 91FC(1A)). This means that the promoter of an arrangement may not be able to apply for a product ruling. This position followed a legislative clarification in 1999 intended, among other things, to ensure that rulings applications were limited to “seriously contemplated” arrangements.
5.3 In contrast, in Australia, product binding rulings can only be applied for by the promoter of a scheme or by persons involved as principals carrying out the arrangement. Participants or investors in the scheme cannot apply for a product ruling. 
5.4 There are advantages to investors, promoters and Inland Revenue in issuing binding rulings on schemes. Prospective investors could make their investment decision in full knowledge of the tax effects of the arrangement which would also assist investors voluntarily complying with their tax obligations. The promoter of the scheme could use the binding ruling to market the scheme as a means of demonstrating that the scheme is sound from a tax perspective. For Inland Revenue, the advantage is that it becomes aware of the arrangement at an early stage and administrative costs in auditing the scheme will be reduced or eliminated.
5.5 Encouraging (or at least not discouraging) promoters of schemes to apply for product rulings could result in these applications becoming standard practice. If this occurred, arrangements that were not supported by a product ruling would start to become the exception and be seen as more risky than those with Inland Revenue clearance. This could help in securing a tax-compliant environment.
5.6 We consider that the requirement for the applicant to be a party to the scheme should contain an exception for promoters. This would apply either when the applicant who is not a party to the scheme is a promoter of the scheme or is another person with a similar interest to that of a promoter. This could be achieved either within the existing product ruling legislation or by creating a further special category of ruling.
5.7 Consistent with the objectives of providing certainty in investment planning and maintaining tax compliance, ruling applications by promoters and similar persons would be limited to prospective arrangements. As with all rulings on prospective arrangements, the arrangement would have to be seriously contemplated.
5.8 A concern that would have to be addressed in designing this type of ruling is the possible incentive for promoters of arrangements to omit relevant information or misrepresent the arrangement to obtain a favourable binding ruling. This incentive could be provided by the applicant not being a party to, and therefore not having a financial interest in, the arrangement.
5.9 One option for dealing with this concern would be to require the promoter of the scheme to make a declaration that the material provided in the application is correct. Another option could apply in cases where the arrangement, once begun, gives rise to an abusive tax position shortfall penalty for the investors. In that case, if the applicant for the ruling had omitted or provided false information, the promoter penalty could be automatically applied. Submissions on these alternatives are welcome.
Clarification of the “seriously contemplated” requirement
5.10 The Commissioner may not make a product ruling if the person to whom the ruling applies is not “seriously contemplating” the arrangement at the time the ruling is applied for (section 91F(4)(b)). If, as suggested in this chapter, persons that are not party to the arrangement are able to apply for a product ruling, the ruling may be given before any prospective investors are aware of its existence. In that case the “seriously contemplated” requirement would not be met.
5.11 We consider that the requirement should remain as it serves to appropriately limit the number of rulings applications made to Inland Revenue. However, we consider that the legislation should be amended to remove the requirement that the person to whom the ruling is to apply is seriously contemplating the arrangement and replace it with a requirement that the applicant is seriously contemplating that the arrangement will be proceeded with.
Summary of suggested options
Allow promoters of arrangements, or those with a similar interest to a promoter, to apply for a product ruling for prospective arrangements.
Require promoters to declare the correctness of the information they provide or be automatically subject to the promoter penalty in certain cases.
12 PR 2007/71 The Product Rulings System, at paragraphs 55 and 56.