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  • Managing disputes with large corporate groups

    We aim to prevent disputes where appropriate. However, where disputes do arise, we work to resolve them as early as possible. Company taxation is complex, especially when applied to the affairs of large corporations. This can and does lead to differences in opinion between us and taxpayers on how the law applies to particular arrangements.

    Alternative dispute resolution

    Alternative dispute resolution (ADR) involves an impartial person assisting parties in a dispute to resolve or narrow the issues between them. As part of ADR processes, we are leveraging cooperative relationships. For example, to help resolve valuation and pricing issues, and improve transparency, we are:

    • jointly engaging experts and conducting discussions between experts
    • examining the information and assumptions underpinning the methodology and valuation to resolve issues. We only seek another valuation when issues cannot be resolved.

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    Independent review

    Large corporate taxpayers can (in certain circumstances) seek a review of the technical merits of an audit position, before the position is finalised. The review is conducted by a senior officer from a separate area of the ATO, who has no previous involvement with the audit.

    Similarly, after issue of an amended assessment, a taxpayer may object against the amendment. Objections against amended assessments are also conducted by senior officers from a separate area of the ATO previously uninvolved in the casework.

    Settlements

    In certain circumstances, we may agree to a settlement with the taxpayer, consistent with the code of settlement. We only settle disputes when it is appropriate to do so. Factors we consider in deciding whether to settle are the:

    • relative strength of the parties’ positions
    • cost versus the benefits of continuing the dispute
    • impact on future compliance for the taxpayer and broader community.

    Settlement negotiations or offers can be initiated by any party to the dispute. They can occur at any stage, including before assessments are raised.

    If there are multiple taxpayers involved in the same or similar arrangement, we seek consistency of treatment for taxpayers in comparable circumstances. This may include developing a widely based settlement position.

    Of all client groups, settlements with public and multinational businesses have the lowest variance between the original ATO position and the settled amount.

    Independent assurance of our largest and most significant settlements by retired Federal Court of Australia judges gives the community confidence these settlements are fair, reasonable and conducted appropriately under the law.

    During 2017–18, 11 of the 12 settlements reviewed were found to provide a fair and reasonable outcome for the Australian community. The one settlement where no conclusion on the outcome was made was noted by the assurer as ‘a difficult case’ involving unique circumstances. We do not foresee the settlement as likely to negatively impact on the taxpayer's future compliance or the broader community.

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    Settlement statistics in:

    Litigation

    In some cases, alternate dispute resolution (ADR) and settlements are not appropriate. In these cases, we proceed to litigation.

    We will litigate in cases where either:

    • there is a contentious or uncertain point of law which requires clarification. It is in the public interest to seek law clarification through litigation
    • the behaviour is such that we need to send a strong message to an individual or the wider community that it is not tolerated
    • the dispute is intractable and an acceptable outcome was not achieved via alternative means of resolving the dispute.

    Test case litigation funding program

    The test case litigation program funds cases with broader implications beyond the individual dispute and that will clarify the tax and superannuation laws we administer.

    The program seeks to ensure the community is provided with clear principles about how to apply the law and gives financial assistance to taxpayers helping them meet some or all of their reasonable litigation costs and, in limited circumstances, pre-litigation costs.

    For taxpayers to receive funding, their dispute must meet the program’s funding criterion and expectations. The decision to fund a case is made by the Test Case Litigation Panel. The panel consists of five members, three of whom are external to the ATO. The panel gives independent views on the merits of cases seeking funding and on the significance of issues to the community.

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    Last modified: 13 Dec 2018QC 53310