27 Feb 15 Management of tax disputes
On 27 February 2015 the government released a report by the Inspector-General of Taxation entitled “The Management of Tax Disputes".
The IGT had previously examined different aspects of the ATO’s approach to dispute management and resolution, including objections, settlement, litigation and the use of alternative dispute resolution (ADR). Furthermore, the IGT has also considered the ATO’s compliance approach to large business and HWIs in separate reviews. In this review, the IGT has drawn on this body of work, submissions to the current review as well as additional research and analysis including comparisons with the revenue authorities of the United States of America, Canada, the United Kingdom, New Zealand and Ireland.
The IGT has observed that the underlying cause of many concerns raised in submissions appears to be a lack of separation between the ATO’s original decision makers and its officers who review such decisions at the request of taxpayers. This has given rise to a lack, or perceived lack, of independence leading taxpayers to believing that their cases were not reconsidered afresh and they were denied a fair hearing.
While recent initiatives by the ATO represent a positive step in relation to its management and resolution of tax disputes, the IGT believes that there is a need for further improvements which are sustainable over time and made available to all taxpayers including small business and individual taxpayers. These taxpayers are the least likely to be in a position to take a dispute to the AAT or the courts due to the significant financial and opportunity costs incurred both upfront and progressively throughout disputes.
Therefore, the IGT has recommended the creation of a separate and dedicated Appeals Group, led by a new Second Commissioner, to embed the improvements within the ATO structure and provide a framework that is less dependent on the views and ideals of the ATO leadership of the day. It will also bring the ATO more in line with comparable international revenue authorities.
The new Appeals Group would manage and resolve tax disputes for all taxpayers including the conduct of pre-assessment reviews, objections and litigation as well as championing the use of ADR throughout the dispute cycle. The separation from both the ATO’s compliance and legal advisory functions would facilitate a fresh and impartial review of the taxpayer’s case by empowering officers of the new area to resolve disputes through the most appropriate means, taking into consideration the individual circumstances of the taxpayer, their case and assessment of the ATO’s precedential view. Additionally, the new area would ensure that settlements are appropriately scrutinised and in the best interests of the community.
The government has said that it will consider the report’s recommendations on conclusion of the Inquiry into Tax Disputes currently being held by the House of Representatives Standing Committee on Tax and Revenue: Assistant Treasurer’s media release (27 February 2015).