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How transparency can reduce exposure to disputes

25 April 2012

Jack Grocott

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Both taxpayers and officials need to change their approach to tax transparency if they are to ensure greater compliance and reduce exposure to tax disputes.

That will be the conclusion of a panel at International Tax Review's Tax & Transparency Forum in London on May 2.

Speakers will explain how being transparent in the way officials and taxpayers manage tax disputes can avoid unnecessary costs, curtail the length of a battle, and boost the chances of resolution.

One of the main focus points of the discussions will centre on the debate between taxpayer confidentiality and transparency in disputes.

Using HM Revenue & Customs (HMRC) as an example, speakers will highlight how the UK's tax authority need to maintain confidentiality is being perceived by many as a byword for secrecy and privilege.

The session will explain how a damning report criticising the way HMRC handles its disputes with large taxpayers saw the creation of a new role that aims to make HMRC's processes more open and accountable.

An assurance commissioner will be appointed to scrutinise large settlements and ensuring the wider interests of taxpayers are protected.

A report from the Public Accounts Committee of the UK House of Commons in December slammed HMRC's approach to settling disputes with large taxpayers.

The committee, which is made up of members of Parliament from all political parties, said that £25 billion ($39 billion) was outstanding in unresolved tax bills and that those who negotiate and those who authorise tax settlements to recover this money had to be different people. It accused HMRC of not being straight with it about how settlements were reached.

"[The commissioner will] oversee all large settlements and protect the interests of taxpayers at large and publish a code of governance for tax dispute resolution," said James Bullock of McGrigors (changing its name to Pinsent Masons from May 1), who will moderate the session.

The panel will also scrutinise the opportunities for taxpayers to resolve dispute using the alternative dispute resolution (ADR) scheme.

In September HMRC published draft guidance on ADR. Previously a tax dispute was only settled by bilateral agreement between the HMRC caseworker and the taxpayer or at a Tribunal. Now HMRC is prepared to consider alternative methods.

These are:

  • Facilitative mediation, where the mediator offers no opinion but brings the two parties together;
  • Evaluative mediation, where the mediator may offer a view on the merits of the respective parties; and
  • Expert determination.

"HMRC is more determined than ever to ensure that tax planning is challenged and the pace of these challenges is increasing," said Ray McCann, of McGrigors. "The amount of resource HMRC is prepared to deploy should not be underestimated and they may also look to attach a broader range of liabilities for example income tax, CGT and IHT. Understanding how best to use various dispute resolution techniques will be increasingly important.HMRC says the key elements when approaching a dispute are to support customers in getting their tax right the first time to prevent a dispute arising, and, when a dispute does arise, resolving it in a way which establishes the right tax due at the least cost."

The Forum is free to attend for tax directors and NGOs. For a full programme and details of how to register, click here.

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