OPINION: The current disputes resolution system was introduced with fanfare and high hopes in 1996.
Resolving tax disputes, however, can be an expensive and slow process for businesses; some taxpayers are "burnt off" and abandon the process. It entails a number of formal steps, including the option of a conference between the taxpayer and Inland Revenue.
Over the past few years the conference phase has included facilitation by independent Inland Revenue staff who have not had involvement in the dispute.
This development has resulted in more partial and full settlements at the conference phase. At a recent public forum an Inland Revenue spokesman said disputes were settled at 30 per cent of facilitated conferences.
He also commented that settlement of the dispute was not the department's primary focus at the conference phase.
I believe Inland Revenue should innovate further and adopt alternative dispute resolution and aim to settle far more disputes at the conference phase.
The British tax department has trialled alternative resolution as a way of settling tax disputes for small and medium businesses in a quick and cost-effective manner.
The use of facilitated discussion has been well received by British taxpayers and tax advisers.
It is expected that the new process will also be applied to large British businesses.
The process involves trained facilitators bringing the parties together so each can articulate how their dispute would be argued in court. Facilitators are usually provided by the British tax department. The aim is to attempt to reach resolution of the dispute at a single meeting (albeit a potentially long meeting). Prior to the meeting, the parties usually exchange written submissions as to the issues agreed to be in dispute. This is similar to the New Zealand process up to the point of the conference.
The British tax department's support for alternative resolution reflects a commitment to use mediation to resolve tax disputes efficiently. I am unsure how committed Inland Revenue is to settling disputes in a more efficient manner. To be fair to Inland Revenue investigations and technical staff, there is little if any framework for compromise in the disputes process. This contrasts with the flexibility sometimes exercised by Inland Revenue legal staff and Crown law "on the court steps", either before or during actual litigation.
I believe the New Zealand tax system would benefit by supplementing the existing conference phase by introducing a more formal process and the use of alternative resolution techniques, such as the appointment of trained mediators to actively work to bring the parties together and broker an agreement. The overall aim would be to give the conference phase more substance by presenting a real opportunity to settle disputes without having to go to court.
The Australian Tax Office is currently conducting a pilot using in-house facilitation to resolve small indirect tax disputes.
Inland Revenue has made no commitment to alternative resolution. If the Australians adopt alternative resolution for income tax, there may be a move to trialling it in New Zealand.
If so, our tax disputes process would benefit.
Murray McClennan is director of Tax Central Ltd, a specialist tax consulting firm. He can be contacted by emailing firstname.lastname@example.org. The above comments are of a general nature only and are not a substitute for specific advice.
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