Feature: Dispute resolution approach
To reduce the number of disputes arising and costly delays, we continue to engage with taxpayers earlier to arrive at sensible decisions and explore opportunities to improve our processes. Where disputes do occur, we use the early intervention and review options that have been developed to avoid litigation wherever possible.
Our strong preference is to avoid disputes and to pursue voluntary compliance. As we apply tax law to facts, some areas of disagreement are inevitable. Where disputes do arise, we aim to resolve them early; ensuring we treat taxpayers in similar situations fairly and consistently. As litigation is the most costly and lengthy dispute resolution method for all parties, we limit the use of litigation to carefully selected and appropriate cases.
Over recent years, we’ve made significant improvements to the way we manage disputes and have a range of dispute resolution strategies in place to prevent and resolve disputes as quickly as possible:
- Refreshed ATO sensible settlement practices and guidance for staff
- Focused on early engagement with taxpayers or their representatives to better understand their concerns, needs and points of view
- independent review where there is disagreement
- using ‘in-house’ facilitators to assist resolution
We work collaboratively to reduce the time it takes to resolve disputes, reduce the number of disputes, lower the costs both for taxpayers and us, and make interactions with us easier.
To provide better assurance to taxpayers disputing a decision, the ATO moved all objections work to a newly formed and separate Review and Dispute Resolution (RDR) business line within the ATO. RDR ensures independence and brings a fresh set of eyes to a dispute while providing the community with improved assurance of fair and reasonable outcomes.
The aim of early engagement is to provide the taxpayer with an opportunity to meet with us before deciding whether to lodge a request for a ruling, objection or amendment. It will generally be a one-off meeting or phone conference to discuss the best way to deal with a correction or change.
Prior to early engagement, seeking advice tended to be reactive. Clients would reveal their complex transactions for the first time through the lodged ruling application when plans were advanced or already implemented. The early engagement approach ensures that the right people are brought together to effectively discuss the best way to proceed. This approach ensures a better experience and provides certainty for both the client and ATO staff.
Independent reviews were introduced to improve resolution of disputes in large market audits. Taxpayers with a turnover of $250 million or more are able to request an independent review of their statement of audit position before assessments are issued.
Resolution efforts have increased in two ways:
- More negotiations or ADR, before and after Independent reviews
- Where the taxpayer’s position is considered to be the better view, cases are closed.
We are exploring the implications of expanding this service to other markets.
Since the introduction of GST independent reviews, none of the cases that were independently reviewed progressed to objection.
Alternative dispute resolution (ADR) approach
ADR is a sub-set of dispute resolution and an inclusive term for all processes, other than judicial or tribunal determination, where an impartial person assists those in dispute to resolve or narrow the issues between them. We are increasingly using ADR approaches to resolve disputes before litigation and where informal negotiations were not successful. This involves both parties coming together to negotiate in good faith, making full disclosures and clearly stating their respective positions.
ADR processes that we use are:
- Facilitative: a trained independent in-house facilitator assists participants to negotiate their dispute by helping parties to identify the disputed issues, develop options, consider alternatives and endeavour to reach an agreement. The facilitator will guide the parties involved through the process and will assist with keeping open lines of clear communication. This is the most common form of ADR and there is no cost for the client associated with in-house facilitation. There were 41 GST cases referred for this process in 2014–15, resulting in 32 in-house facilitation processes conducted for these GST cases. Four cases were subsequently resolved by formal settlement and one through an objection.
- Advisory: an ADR practitioner considers and appraises the dispute and provides advice on some or all of the facts in the dispute, the law, and possible or desired outcomes. It is then up to each party to decide if they accept the advice and how they will use that information.
- Conciliation: a process where the participants negotiate with the assistance of an ADR practitioner who helps the parties identify the issue in dispute, develop options, consider alternatives and endeavour to reach an agreement. However, unlike in-house facilitators, a conciliator may give expert advice to the parties on possible options for resolving the dispute and actively encourage the participants to reach an agreement.
We may settle a dispute where we consider it consistent with good management of the tax system. In doing this, we balance our responsibility to collect taxes with the need to administer the tax system sensibly, having regard to relevant factors such as the relative strength of the positions of both parties, the cost versus the benefits of continuing the dispute and the impact on future compliance for the particular taxpayer and the broader community.
GST settlements increased by 141% this year, with 77 settlements in 2014–15 and 32 in 2013–14.
Figure 26: Stage at which settlement occurred during 2014–15
Pre-audit 8 (10%)
Audit 15 (20%)
Objection 20 (26%)
AAT 31 (40%)
Federal Court 3 (4%)
CASE STUDIES: Sensible dispute resolution
As part of due diligence for the restructure and sale of particular businesses, a tax adviser submitted a private ruling application seeking clarification around whether entities were eligible to access a particular concessional provision.
Applying early engagement principles, our advice staff decided to engage internal technical experts to consider the request. As insufficient information had been provided to determine the issue in the initial ruling request, a case conference call was organised. During the discussion, it became clear that the particular provision did not apply and we were able to explain why this concession could not possibly apply to the taxpayer. Had the entities proceeded without seeking a ruling, this could have resulted in a significant administrative burden to correct the reporting and may also have created problems for the restructure and sale transactions.
Without early engagement, it was likely a favourable private ruling would have been denied after lengthy attempts to seek further information through formal requests. This may have also resulted in potential objections, but ultimately no success for the taxpayer.
However, in the case conference, we sought further information, allowing us to identify an alternative provision that would give a similar outcome and we suggested the adviser explore this. Within a week, the adviser was able to provide information that allowed the technical expert to confirm that the alternative provision applied. A speedy, favourable private ruling was issued soon after.
Unnecessary unwinding of past transactions was avoided, and did not interfere with the restructuring and sale processes, which generated significant revenue.
A small business was expanding too rapidly and their bookkeeping systems were not keeping pace. Immediate attempts to recover initial audit GST liability estimated to be $760,000 would have resulted in insolvency, loss of over 50 skilled tradespeople jobs and the loss of future forward contracts. If the insolvency path were taken, it is unlikely that we would have recovered much of the liability. Although the business did not own many assets, it had high value forward contracts enabling revenue if the business continued.
By using in-house facilitation, the ATO and the small business were able to negotiate a reasonable estimate of tax due and agreed a repayment plan. $200,000 has now been paid off the debt, with the balance to be repaid in instalments of $35,000. This approach allowed the small business to keep trading and growing. The tradespeople retained their jobs and the company continued to contribute to the economy. The ATO avoided costly winding up action that had little likelihood of recovering much of the debt, and will continue to receive revenue from this business into the future.
Related entities approached us to advise that there were issues with supplies that were GST-free being incorrectly reported as taxable by one entity and the other entity incorrectly claiming input tax credits. There was no negative impact on revenue as a result of these errors. Correcting this reporting would have been expensive and complex and involved administrative costs for the entities as well as the ATO. By bringing all parties together as part of a settlement, we eliminated the need for costly and time-consuming ‘unwinding’ of transactions.
End of example