Thinking | 4 November 2015
Managing tax disputes – A shift in focus
Traditionally, tax disputes can be long, tedious, adversarial and very costly for both taxpayers and the ATO.
However, in recent times, the ATO has implemented a range of policies and initiatives for the management of tax disputes that have encouraged a shift away from the traditional, adversarial approach to a more collaborative, fair and efficient system of resolution.
Some of these initiatives include:
- A dedicated Review and Dispute Resolution (RDR) team has been established within the ATO to take responsibility for all objections, litigation and alternative dispute resolution (ADR). The focus of the RDR team is to resolve disputes early and consider ways in which disputes can be prevented.
- The introduction of an independent review function, which allows large taxpayers to request an independent senior officer at the ATO (who has had no involvement in the dispute) to review the position taken by the ATO audit team and provide an opinion on the merits of the case prior to the finalisation of the audit. The process only takes 12 weeks and has (anecdotally) received very positive feedback from participants.
- The ATO is increasingly turning to ADR to resolve tax disputes early in the process through traditional methods such as mediation, early neutral evaluation or a blend of both. In-house facilitation is a new method the ATO has implemented for small business and individual disputes at the audit and objection stage. The process is much like mediation but is managed by an independent ATO facilitator who works with the taxpayer and the ATO over the course of a day to identify and narrow the facts in dispute and attempt to reach a resolution with the parties.
- The ATO has revised the Code of Settlement which concisely supports the approach that tax disputes should be resolved early and in a cost-effective manner. A settlement assurance program is also currently being trialed within the ATO to provide confidence to the broader community that tax disputes are being settled by the ATO in the right way.
- The ATO has identified that fairness in the dispute resolution process is an important outcome. Key performance indicators for ATO officers now include taking the individual circumstances of the taxpayer into account, providing reasons for decisions, providing effective and ongoing engagement with the taxpayer and considering the whole experience of the dispute for the taxpayer.
The focus on resolving tax disputes earlier is a positive step forward for both taxpayers and the ATO. While the ATO has conceded that the reinvention process will be a long journey, the initiatives that have been implemented so far provide taxpayers with more options to resolve their disputes early, and we expect to continue to see more positive changes from the ATO to further promote efficiency in managing tax disputes.
While the above initiatives and policies reinforce the ATO’s commitment to resolving disputes early, there will always be cases where the law is unclear, and it is in the public interest for the matter to be clarified judicially. In specific cases, the ATO will provide test litigation funding on application by the taxpayer. The ATO is also working to identify the test cases that should go to litigation earlier in the dispute process.