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HMRC launches ‘alternative dispute resolution’ pilot for SMEs

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HMRC is to ‘consider and test’ alternative ways of resolving tax disputes with SMEs, with a view to reducing the impact of ‘avoidable’ disputes. In cases selected for alternative dispute resolution (ADR), HMRC ‘facilitators’ will be invited to adopt ‘an open and collaborative approach’ with taxpayers and advisers and reach agreement where possible.

ADR is not a new concept and is not unique to tax. ‘I share the view … that although the primary role of the court is as a forum for deciding cases it is right that the court should encourage the parties to consider the use of ADR as a means to resolve their disputes,’ Lord Woolf wrote in his 1996 report ‘Access to Justice’.

ADR for tax disputes has been the subject of ‘informal consultation’ for more than a year. KPMG Tax Partner Paul Harrison said during a Tax Journal round table discussion last April that it was  ‘potentially quite a difficult area’.

‘The right conclusion’
There could be a perception, he said, that ADR equals ‘doing deals’ but using different language. Dave Hartnett, Permanent Secretary for Tax at HMRC, said the department would have to ‘work phenomenally hard’ to make sure ‘people don’t think ADR is just a deal’.

‘For me it's a faster and better way of getting to the right conclusion in the right circumstances,’ Hartnett said. In transfer pricing cases, he said, there was ‘no perfect answer’.

‘There might be a position where both sides are close enough together to reach a conclusion, but there is actually no perfect answer unless you use the courts to force out an answer,’ he added.

Shades of grey
Paul Morton, Head of Group Tax at Reed Elsevier, has welcomed ‘the new approach to trying to resolve disputes through collaborate processes’.

Writing in Tax Journal (20 December 2010) Morton said: ‘A facility which enables parties to a dispute to think differently, to seek collaborate solutions and in appropriate cases to benefit from some degree of mediation has to be welcome. It is often the case that an issue which may seem black or white is in fact divisible into various shades of grey which can form the basis of a reasonable settlement.’

Geoff Lloyd, head of dispute resolution at HMRC, has said a collaborative approach ‘should not be confused with HMRC going soft on its job of collecting the “right tax”’.

‘Whether disputes are resolved bilaterally by agreement between HMRC and the customer, with the involvement of a third party mediator, under an ADR process, or by litigation, disputes will still be resolved in accordance with the law, and the [Litigation and Settlement Strategy] will continue to govern how all tax disputes, large or small, are resolved in a way which gets to the “right tax”,’ he wrote in Tax Journal (10 January 2011).