Resolving Legal Uncertainty: The Fulfilled Promise of Advance Tax Rulings

Advance tax rulings allow taxpayers to achieve certainty about the tax
consequences of contemplated transactions, and are thus considered
indispensable in the modern world of tax administration and
compliance. After providing evidence of tax law uncertainty, which
should give rise to a demand for advance tax rulings, the Article shows
that advance tax rulings are in fact infrequently used. To explain this
counterintuitive finding, the Article analyzes the taxpayers' strategic
considerations when deciding whether to request an advance tax ruling.
The strategic disadvantages of applying for an advance tax ruling are
shown usually to outweigh the strategic advantages of such a request.
Since the same strategic considerations apply when taxpayers decide
whether to request an advance pricing agreement - a new procedure for
resolving transfer pricing disputes - this analysis also explains why,
despite considerable attention from scholars and practitioners in recent
years, advance pricing agreements have been infrequently used, and are
therefore unlikely to resolve the transfer pricing problem -probably the
most significant problem in modern international taxation.