Dispute Resolution Instruction Bulletin

DR IB 2013/7

Settlement of debt recovery proceedings

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Purpose:

To provide guidance to DR Debt Resolution Practice staff in relation to the settlement of debt recovery proceedings

Stream:

Debt Resolution Practice

Background

1. Law Administration Practice Statement PSLA 2011/7 - Settlement of debt recovery litigation provides the policy framework for settlement of debt recovery proceedings.

2. This Instruction Bulletin sets out the procedures to be followed by DR Debt Resolution Practice staff when settling debt recovery proceedings.

Instructions & Guidance to Staff

A. Identify changing risks in debt recovery proceedings

3. DR Debt Resolution Practice staff must continually identify, monitor and manage risk in proceedings conducted on behalf of the Commissioner in accordance with Law Administration Practice Statement PSLA 2009/9 - Conduct of Tax Office Litigation, Law Administration Practice Statement PSLA 2011/6 - Risk management in the ATO and Law Administration Practice Statement PSLA 2011/7 - Settlement of debt recovery litigation.

4. The litigation risk must be assessed, to determine and apply the most appropriate debt resolution strategy. This risk assessment occurs:

(a)

for routine debt recovery proceedings, in consultation between the DR litigator, the DR Manager and the BSL officer;

(b)

for more complex debt recovery proceedings

I.

as part of the strategic call-over processes which are regularly conducted by the Assistant Commissioners for Debt Resolution Practice, or

II.

more regularly with the Assistant Commissioners if the exigencies of the matter warrant this.

5. Law Administration Practice Statement PSLA 2011/7 - Settlement of debt recovery litigation sets out the risk based principles to be considered when deciding whether it is appropriate to settle debt recovery proceedings and also sets out a general guide to the circumstances where it may be appropriate or inappropriate to settle.

6. The ongoing risk assessment process may, at any stage (including pre-litigation), result in a conclusion being reached that the matter ought to be settled.

B. Determine who has authority to settle

7. The ATO's Code of Settlement Practice ('the Code') provides that a settlement involves an agreement or arrangement between the parties to finalise their matters in dispute in situations where it is in the best interest of the Commonwealth to do so. The Code is primarily aimed at settlement of disputes that arise under Part IVC of the Taxation Administration Act 1953. Debt recovery litigation has been expressly excluded from the scope of the Code. Notwithstanding this, the aim of PSLA 2011/7 - Settlement of debt recovery litigation is to apply similar principles and philosophies to those of the Code in debt recovery proceedings.

8. Where the DR officer considers that it is appropriate to settle debt recovery proceedings, an officer with authority to settle that matter must be identified. In this context it is necessary to draw a distinction between settlements of debt recovery proceedings and compromise of taxation debts.

(i) Authority to Compromise Tax Debts

9. A "compromise" is an agreement to accept a sum less than the debt in full satisfaction of that debt, whether payable in one amount, either immediately or at a later date, or by instalments and permanently agree not to pursue recovery of the balance of an undisputed debt.

10. Law Administration Practice Statement PSLA 2011/3 - Compromise of taxation debts:-

(a)

deals with the Commissioner's ability to resolve undisputed taxation debts by deciding whether or not to accept an offer to compromise. In this context "undisputed" means that there are no disputes about the parties' liability for taxation (for example through Part IVC of the Tax Administration Act 1953);

(b)

contains a set of guiding principles for the Commissioner in the exercise of his power to compromise undisputed taxation debts;

(c)

applies specifically to the compromise of undisputed taxation debts. Accordingly, compromise of disputed taxation debts; settlement of debt recovery litigation in the absence of any compromise of undisputed taxation debts; and actions commenced by a liquidator against the Commissioner in relation to an unfair preference or other voidable transaction; are outside the scope of PSLA 2011/3 - Compromise of taxation debts.

11. Approval for the acceptance of a proposal to compromise a tax debt must be obtained from one of the six Senior Executive officers or Director in Strategic Recovery in the Delegation signed by the Commissioner dated 12 July 2010. All ATO officers at and above the APS5 level are authorised to reject an application to compromise tax debts (See Appendix 1 - Delegation and Authority to Compromise Tax Debt).

12. In all cases involving the compromise of a taxation debt, a deed is to be drafted by DR and signed by all relevant parties to evidence what has been agreed between the parties.

(ii) Authority to Settle Debt Recovery Proceedings

13. A settlement in the debt recovery context usually means bringing the legal proceedings to an end by agreement of the parties.

14. Where a settlement is considered appropriate the Commissioner has delegated authority to settle debt recovery proceedings. (See Appendix 2 - Delegation and Authority to Settle Debt Recovery Litigation).

15. The considerations which may be relevant to the decision to settle debt recovery proceedings are set out in:

(a)

Law Administration Practice Statement PSLA 2011/7 - Settlement of debt recovery litigation;

(b)

Law Administration Practice Statement PSLA 2011/6 - Risk management in the ATO; and

(c)

Law Administration Practice Statement PSLA 2009/9 - Conduct of Tax Office Litigation.

16. As a general guide, settlement may be appropriate if:-

•

there is doubt about the Commissioner's ability to overcome the taxpayer's defence and the costs and time delay associated with collecting the full amount of the debt are such that the real value of the proposed settlement offer is in excess of the amount that is likely to be collected some time in the future;

•

scope exists for the matter to be resolved swiftly through alternative dispute resolution without expending further costs in continuing to defend or pursue a claim;

•

there is insufficient evidence available (for example, through the passage of time) to support the commissioner's ability to successfully recover funds held by entities other than the taxpayer;

•

pursuing a matter to trial could prejudice well-established principles of law; or

•

fresh evidence which comes to light during the proceedings clearly establishes and supports the taxpayer's defence, and the Commissioner, as a model litigant, would be required to discontinue litigation.

17. DR officers at the EL1 and EL2 level are authorised to exercise their authority under the Instrument of Authorisation dated 7 July 2008 to conclude settlements of debt litigation in accordance with the monetary limits outlined in Appendix 2 - Delegation and Authority to Settle Debt Recovery Litigation.

C. Authority to Remit General Interest Charge ('GIC')

18. The Commissioner's Delegation and Authority to Settle Debt Recovery (Appendix 2) includes the specific delegation "to conclude settlements... relating to GIC, including any remissions". The Instrument of Authorisation dated 7 July 2008 (See Appendix 2), authorises DR officers at the EL1 and EL2 level "to conclude settlements of debt litigation ... relating to GIC, including any remissions".

19. The considerations relevant to a decision to remit GIC as part of a settlement of a debt recovery proceeding are set out in Law Administration Practice Statement PSLA 2011/7 - Settlement of debt recovery litigation. A general guide on these considerations is set out in paragraph 16 herein. Regard should also be had to the considerations set out in Law Administration Practice Statement PSLA 2011/6 - Risk management in the ATO and Law Administration Practice Statement PSLA 2009/9 - Conduct of Tax Office Litigation.

20. Importantly, whilst in certain circumstances the remission of GIC may form a component of a settlement of a debt recovery proceeding, the remission of GIC is not to be used as an inducement to settle a disputed debt.

21. It is expected that EL1 and EL2 DR officers involved in debt recovery proceedings will have the appropriate skills and exercise the appropriate degree of care in considering remission of GIC. However, all DR officers should consult with their BSL officer regarding any decision to remit GIC.

22. Furthermore, it is important to note that the authorisation to remit GIC as part of the settlement of a debt recovery proceeding is separate to the general ATO policy governing the remission of GIC is set out in Law Administration Practice Statement PSLA 2011/12 - Administration of general interest charge (GIC) imposed for late payment or under estimation of liability. The general ATO policy continues to be a matter for duly authorised officers of the Debt BSL to administer according to the policy guidelines of PSLA 2011/12.

D. Engage in Alternative Dispute Resolution as appropriate

23. The ATO recognises and supports the use of Alternative Dispute Resolution ("ADR") in appropriate cases as a cost effective, informal, consensual and speedy means of resolving disputes.

24. Law Administration Practice Statement PSLA 2007/23 Alternative Dispute Resolution in Tax Office disputes and litigation reminds DR officers they have a duty to ensure they possess the appropriate delegation or authorisation in relation to decisions they make and must ascertain the limits of their power.

25. Before attending ADR, the ATO representatives must:-

(a)

to the extent possible, be fully familiarised with the case and ensure that they have fully determined all factors that may change the risk or decision to settle (this requirement acknowledges that new information or arguments may be raised without notice or with insufficient notice and it may not be possible for the ATO representative to familiarise themselves with or make determinations on this material prior to attending the ADR);

(b)

have carefully considered and explored any appropriate options for resolution of the dispute and discussed these with a person authorised to finalise the dispute or conclude the settlement;

(c)

be fully conversant with the relevant ADR process;

(d)

ensure that they have the appropriate authorisation to settle the matter on the day and that they have adequately consulted with stakeholders such as the Debt BSL on the terms of any settlement. If the ATO representative participating in the ADR process does not have authority to settle the matter (for example, the monetary limit involved exceeds authority and requires consultation with Senior Executive Service level officers) then:-

(i)

clear instructions on the possible acceptable terms of settlement should be obtained; and

(ii)

arrangements are to be made to have an authorised person contactable by telephone (or if practicable a video conference) so an in-principle agreement can be made between the parties.

Note: It is only in exceptional circumstances that an ATO representative will not be physically present at any ADR attendance. In any case where physical presence is not proposed the DR officer will consult with their State Manager and/or their Assistant Commissioner for Litigation to ensure that the proposed arrangements for the ADR attendance are appropriate and are approved at a senior level.

26. If a compromise proposal is submitted during the ADR, the taxpayer is to be reminded a formal approval cannot be provided until the proposal is submitted in written form - however an "in principle" approval may be provided in the ADR by an authorised ATO representative

E. Record Reasons for Settlements

27. All settlements in debt recovery proceedings must be recorded to ensure transparency, consistency and accountability and facilitate staff development, quality assurance and adherence to corporate governance policies.

28. An authorised EL1 or EL2 DR officer in the DR Debt Resolution Practice may approve a settlement offer on the basis of a change in the risk assessment of a debt recovery proceeding to the specified limit of their authority. If this occurs, the relevant officer is to ensure they:-

(a)

record details of the issue resulting in a change in the risk assessment of the proceeding;

(b)

immediately advise their relevant manager of the details and decision; and

(c)

ensure that the settlement details are recorded.

Direction to Staff

This Instruction Bulletin is to be implemented immediately within the DR Debt Resolution Practice for the settlement of debt recovery proceedings.

Approved by:

Assistant Commissioner, Dispute Resolution

Appendix 1 - Delegation and Authority to Compromise Tax Debt

29. In a Delegation dated 12 July 2010 the Commissioner delegated his power to approve or reject applications from taxpayers to compromise tax debts six Senior Executive officers and a Director in Strategic Recovery, including the Chief Operating Officer.

30. On 12 July 2010, the Chief Operating Officer authorised all APS5 officers and above carrying out debt recovery functions to reject applications to compromise tax debts via a Compromise Authorisation.

Appendix 2 - Delegation and Authority to Settle Debt Recovery Litigation including the remission of GIC

31. On 11 April 2011 the Commissioner delegated his authority to conclude settlements of debt litigation to a number of Senior Executive staff, including the Chief Operating Officer.

32. On 7 July 2008 the Chief Operating Officer authorised all EL1 and EL2 officers in the Debt Litigation and Part IVC streams of Dispute Resolution to conclude settlements of debt litigation. The authority includes the authority to remit GIC.

33. While the Instrument itself contains no monetary limit, in May 2007 it was decided that the following limits (the relevant amount of tax to be foregone under a proposed settlement, not the total amount subject to litigation) will apply :-

•

up to $250,000 for EL1 Debt Litigation staff;

•

up to $1,000,000 for EL2 Debt Litigation staff; and

•

if in excess of $1,000,000 the matter must be escalated to SES staff (in either Dispute Resolution or the Debt BSL) who possess the required authorisation.

34. The Delegations and authorisations manual and the Taxation authorisations guidelines both contain comprehensive discussions on what delegations and authorisations are and why they are needed.

Amendment History

Date of decision:  Immediate

Date of publication:  28 May 2013

Legislative References:
Taxation Administration Act 1953
   Part IVC

Other References:
 Delegations and authorisations manual [ATO internal link]
 Taxation authorisations guidelines [ATO internal link]

Related Practice Statements:
Law Administration Practice Statement PS LA 2007/23 - Alternative Dispute Resolution in Tax Office disputes and litigation
Law Administration Practice Statement PS LA 2009/9 - Conduct of Tax Office Litigation
Law Administration Practice Statement PS LA 2011/3 - Compromise of taxation debts
Law Administration Practice Statement PS LA 2011/3 - Compromise of taxation debts
Law Administration Practice Statement PS LA 2011/6 - Risk management in the ATO
Law Administration Practice Statement PS LA 2011/7 - Settlement of debt recovery litigation
Law Administration Practice Statement PS LA 2011/12 - Administration of general interest charge (GIC) imposed for late payment or under estimation of liability