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XYZ plc is a FTSE 250 listed financial institution which has a number of issues outstanding with HMRC. The issues include:

  • A transfer pricing dispute in which £60m of tax is at stake. This dates from 2006 and is still ongoing.
  • A technical dispute relating to the tax treatment of certain limited partnerships in which XYZ plc has a financial interest in  respect of which there is tentative agreement with the Inspector to refer the issue to the First-tier Tribunal. £12m is at stake here, dating from 2006.
  • A dispute over entertaining expenses and corporate hospitality. An estimated £4m at stake here dating from 2007 and is ongoing.

In the light of HMRC's revised Litigation and Settlement Strategy, is there anything that can be done to settle these issues? I am coming under pressure from my CFO who recently remarked that ‘these disputes seem to have been going on for rather a long time!’ 


There are essentially three options available to XYZ's tax director.

First, continue proactively with negotiations – attempt to reach a settlement but bear in mind that it may be necessary to litigate.

Second, attempt to gain entry to one of HMRC's Global Settlement Processes.

Or, third, opt for mediation/Alternative Dispute Resolution under HMRC's new proposed ADR regime.

The backdrop to all of this is HMRC's revised Litigation and Settlement Strategy (‘New LSS’), which sets out the principles within which HMRC handles disputes.

In any of the three scenarios, the New LSS will be in point and will impact on HMRC's attitude – and hence on the advice given.

1. Continue with negotiations

The obvious disadvantage here is that negotiations have been progressing for some time but with no apparent conclusion.

Much will depend upon the attitude of the Inspector.

In relation to the Transfer Pricing Issue and the very technical Limited Partnership issue it is likely that there will be policy level input as well.

Accordingly, in assessing whether and to what extent further negotiations are possible it will be necessary first to appraise the company's prospects of success at a notional Tribunal hearing.

Second, we would have to look at the type of disputes in issue – and there are three in point here.

In relation to the dispute on the technical LLP issue it is likely to constitute a dispute ‘of a genuinely all or nothing nature’.

Accordingly, unless HMRC can be persuaded that there are material weaknesses in its argument it will presumably be very reluctant to back down.

There may, accordingly, be very little scope for negotiation.

The fact that the Inspector has already indicated that he might be prepared to agree to a reference to the Tribunal suggests he is fairly clear in his opinion about this argument.

There may be more scope for negotiation on the Transfer Pricing issue.

2. Global settlement powers

The size of the FTSE company will determine whether it is eligible for the High Risk Corporate Programme (HRCP) (covering the largest corporates) or, for example, the Management of Complex Risk Programme (MCRP) which is more likely given that XYZ plc is in the FTSE 250.

Secondly, it will be necessary for the company to be accepted by HMRC into the relevant programme – and this will depend on a number of factors, such as the company's profile and size.

There are a number of significant advantages in relation to a Global Settlement programme – principally the fact that it envisages the potential for settlement of a basket of issues such as is the case in this scenario.

This does not mean to say (for one moment) that HMRC will in some way be prepared to enter into a horse-trade of one issue for another.

The terms of the new LSS will be very strictly adhered by HMRC.

But the focus on a range of issues with the same taxpayer can be helpful in focusing the mind.

However, there are significant advantages.

In the first place a ‘managed process’ which allows XYZ the potential to access designated and dedicated HMRC resource, who will be trained in – and focused on – dispute resolution.

This should bring more control to the negotiation process, with a structured timetable and effective project management.

Finally, and in particular, if there have been allegations in relation to the company's behaviour it should provide an opportunity to rebalance the relationship with HMRC and to take the heat out of any adverse aspect of that relationship going forward.

3. ADR

The third option is that of mediation. HMRC's guidance on this is currently subject to consultation.

It might be as a result of a managed programme that a particular case is identified as appropriate for mediation.

But an alternative would be to seek HMRC's specific agreement to mediation, either moderated by a HMRC-trained facilitator (with mediation training) or more formal ADR presided over by an independent mediator.

The adviser should consider carefully HMRC's Draft Practical Guidance for HMRC Staff (27 June 2011) and in particular para 5 (In what sort of cases might mediation be appropriate?).

One must assume that a willingness on the part of HMRC at least to consider mediation must also imply a willingness to contemplate settlement.

Certainly, in the field of civil litigation, ADR has proved both popular and, statistically, very effective indeed in promoting settlement.

Certainly, in relation (for example) to the live dispute on transfer pricing, a mediated settlement might potentially be highly appropriate – providing an opportunity for the parties to develop and focus on the merits of their respective arguments – while also providing an opportunity for an alternative approach to settlement to be reached.

The above scenario provides a good indication of some of the options available to parties to a dispute with HMRC for settlement or resolution of disputes.

However, it has at all times to be remembered that the default position is litigation before the Tribunal.

The many opportunities and facilities for resolving disputes are to be welcomed.

But the fallback position is always a Tribunal hearing.

A realistic analysis of the prospects of success of both parties at a putative Tribunal hearing should underpin and provide the backdrop for any attempt at settlement.

James Bullock, Partner, McGrigors
Email:; tel: 020 7054 2598. 

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