Alternative Dispute Resolution
Mediation and Tax Disputes
HM Revenue and Customs (HMRC) is concerned about the growing numbers, and the cost of tax disputes being litigated. As a result it is encouraging both its own officials and taxpayers to explore other ways of resolving tax disputes which do not involve litigation. These are collectively referred to as Alternative Dispute Resolution (ADR).
ADR can take many forms and whilst mediation, which involves the use of an independent mediator to facilitate settlement, has been used for many years to solve commercial and other civil law disputes, it has only recently been considered for tax disputes. Deloitte has been a thought leader in this area and has been involved in a variety of ADR projects.
HMRC have invested heavily in two ADR pilot schemes centred around the use of mediation, one for large businesses and the other for small and medium enterprises and have openly publicised the success of these pilots. HMRC agree that mediation can have a useful role in the effective and efficient resolution of tax disputes and it now has a dedicated Policy team known as the Dispute Resolution Unit, with a remit for extending the use of ADR throughout HMRC.
What are the advantages of mediation?
There are many advantages to ADR:
- it re-establishes communication and allows both parties to withdraw from previously held (and possibly entrenched) views;
- it can introduce a neutral party to help the parties reach a solution which is both commercial and workable;
- it can bring closure to a dispute in a timely manner. The ADR process imposes a structure and tight timetable which force the parties to identify the real reasons for the dispute quickly and to try to reach a compromise on these through the use of structured discussions. If these fail to provide the basis for an agreement then an independent mediator is appointed to help settle the dispute.
- even if agreement cannot be reached, ADR can be used to narrow the issues in dispute between the parties, so if litigation is ultimately needed it will be on a much more focused basis. Often HMRC do not take legal advice until very close to litigation. ADR can flush out issues more quickly as often HMRC will take third party legal advice much sooner as part of an ADR process;
- it is a confidential process. This is attractive because it avoids the risks and commercial sensitivities that are associated with public hearings and reported decisions. Equally, from HMRC’s perspective, mediation is not precedent setting.
What type of tax dispute is suitable for mediation?
Most tax disputes are capable of being resolved through ADR and mediation in particular. However, in our experience some types of disputes lend themselves particularly well to the ADR process. These include disputes where:
- positions have become entrenched based on early conclusions or assumptions;
- there is uncertainty over the facts or over which facts are relevant;
- attempts to resolve the dispute collaboratively have failed;
- there is a lack of understanding of the parties’ respective technical analysis;
- there is limited precedential value because of the facts; or
- cases where there is a range of different outcomes which could be regarded as robust in law e.g. issues of quantum, valuation etc.
Deloitte’s Tax Dispute Resolution Group has worked closely with HMRC to help them develop the mediation pilot and in particular, the use of independent mediators to resolve tax disputes. We were involved in one of the first successful tax mediations which led to a repayment for our client of over £3 million and have been actively involved in a number of other mediation projects.
In addition, two members of the Tax Dispute Resolution Group have received Accreditation as mediators from the Centre for Effective Dispute Resolution (CEDR), a body widely recognised as the foremost trainer of mediators in the world.
Contacts and further information
For further information about ADR for tax disputes, please speak to your usual Deloitte contact or
Giles Salmond Director, Tax Dispute Resolution Group
Telephone: 020 7007 0761
Kristina Peacock Senior Manager, Tax Dispute Resolution Group
Telephone: 020 7007 8505