The 24 February 2023 edition of Tax Journal had an article with the startling headline ‘HMRC’s new ADR guidance: more harm than good?’ and stated: ‘The guidance includes three unexpected changes in policy’ being (i) the exclusive use of an HMRC mediator, (ii); a “circumscribed process”; and (iii) a departure from confidentiality and the without prejudice rule in respect of tax facts’.
Having been a CEDR accredited mediator for over ten years, acting both as a sole and co-mediator in many tax disputes, I read the article with interest and disagree with all three contentions, not least that none of them are in fact new or changes to HMRC policy.
They have all been found for some time on HMRC’s website (see Use of alternative dispute resolution to settle a tax dispute at bit.ly/guidanceonADR) and in its factsheet CC/FS21, both first published in 2014.
There is not space in this commentary to address the first two contentions, so I focus on the article’s third contention in respect of confidentiality and tax facts which states: ‘Perhaps the most alarming feature of the guidance is its departure from the principle of confidentiality’.
Alarming? Not really if you consider the context in which the mediation is taking place.
ADR and its techniques was introduced as part of the refreshed litigation and settlement strategy with its focus on a collaborative approach to dispute resolution, starting at the point when the issues of the amount of tax and the time for its payment are first identified with the ambition for agreement on both elements to be reached between the taxpayer and HMRC long before they turn into ‘disputes’ with entrenched positions being taken by either side.
Any agreement reached with HMRC to be binding, must be on the basis of a full disclosure of all the facts – ‘all cards face up on the table’ applying MFK principles – whether in a traditional negotiation or through the ADR process.
Why should the ADR process in that respect be any different or deserve any other special treatment to the way the process of agreeing a taxpayer’s tax position is otherwise reached?
The article observes that ‘statements concerning tax facts’ may end up being used in future investigations or litigation. What are these ‘statements’ as opposed to the ‘tax facts’ themselves? The LSS guidance makes it clear that it is important to distinguish a fact from a belief or assumption which would therefore not be treated as a fact. Nor would assertions or arguments about the importance of the facts be treated as facts in themselves and therefore all should be covered by the ‘without prejudice’ rule, as would the scenario described in the article where parties in a mediation ‘may be willing to accept certain factual positions they would not otherwise agree to’. That is not a new fact but an interpretation about a fact.
In any event, if new tax facts were subject to the without prejudice rule, any disclosure of them during the mediation process would still result in them having been brought to the attention of HMRC caseworkers who could not then ‘unhear’ what had been disclosed. In those circumstances with that knowledge HMRC could start a line of enquiry to elicit their disclosure or, if need be, produce the same result under careful cross-examination in court.
The words ‘tax facts’ were introduced to better and more objectively identify what the HMRC guidance already provided in CC/FS21 when in respect of the confidential and without prejudice nature of the process it stated: ‘if you tell us something which significantly changes your tax or penalty position, or provides evidence of criminality, it must be shared with HMRC and may be used in formal proceedings’.
So, in effect the word ‘something’ was replaced with ‘tax fact’.
In retrospect, it would have been helpful to make this link in the guidance to allay concerns that HMRC was introducing a new policy, which I do not believe was its intention.
The guidance (at ADRG01800), comments on the term ‘without prejudice’ and states it ‘has a precise, and quite narrow meaning, often misunderstood both by officers and customers’.
Perhaps we should now turn our attention to this rule and agree how it applies to all interactions between HMRC and the taxpayer, not just in the ADR process.
Peter Nias, Pump Court Tax Chambers
We note this reply to our article and welcome the debate this topic has sparked. However, we do not agree with Mr Nias’s views.
Mr Nias’s commentary states that there is nothing new in the guidance. We do not agree. The prohibition on a single joint facilitator, the strict parameters for the ADR process, the departure from the principle of confidentiality and the concept of ‘tax facts’ were set out in writing for the first time in HMRC’s newly published manual. We consider they go against the tribunal’s practice statement and the established principles of mediation.
Regardless, longevity is not a good reason for poor policy. Our article had two purposes: to highlight the shortcomings of HMRC’s approach, and to call on HMRC to reconsider their stance. We remain of the view that the current guidance and process are ultimately unhelpful and would urge HMRC to review and amend its policy. The overarching concern is that HMRC’s approach to ADR is to seek to control it and, if necessary, to retain the ability to take advantage of it. Negotiations need ‘two to tango’ and these changes do little to attract taxpayers to the table.
David Pickstone & Anastasia Nourescu, Stewarts
The 24 February 2023 edition of Tax Journal had an article with the startling headline ‘HMRC’s new ADR guidance: more harm than good?’ and stated: ‘The guidance includes three unexpected changes in policy’ being (i) the exclusive use of an HMRC mediator, (ii); a “circumscribed process”; and (iii) a departure from confidentiality and the without prejudice rule in respect of tax facts’.
Having been a CEDR accredited mediator for over ten years, acting both as a sole and co-mediator in many tax disputes, I read the article with interest and disagree with all three contentions, not least that none of them are in fact new or changes to HMRC policy.
They have all been found for some time on HMRC’s website (see Use of alternative dispute resolution to settle a tax dispute at bit.ly/guidanceonADR) and in its factsheet CC/FS21, both first published in 2014.
There is not space in this commentary to address the first two contentions, so I focus on the article’s third contention in respect of confidentiality and tax facts which states: ‘Perhaps the most alarming feature of the guidance is its departure from the principle of confidentiality’.
Alarming? Not really if you consider the context in which the mediation is taking place.
ADR and its techniques was introduced as part of the refreshed litigation and settlement strategy with its focus on a collaborative approach to dispute resolution, starting at the point when the issues of the amount of tax and the time for its payment are first identified with the ambition for agreement on both elements to be reached between the taxpayer and HMRC long before they turn into ‘disputes’ with entrenched positions being taken by either side.
Any agreement reached with HMRC to be binding, must be on the basis of a full disclosure of all the facts – ‘all cards face up on the table’ applying MFK principles – whether in a traditional negotiation or through the ADR process.
Why should the ADR process in that respect be any different or deserve any other special treatment to the way the process of agreeing a taxpayer’s tax position is otherwise reached?
The article observes that ‘statements concerning tax facts’ may end up being used in future investigations or litigation. What are these ‘statements’ as opposed to the ‘tax facts’ themselves? The LSS guidance makes it clear that it is important to distinguish a fact from a belief or assumption which would therefore not be treated as a fact. Nor would assertions or arguments about the importance of the facts be treated as facts in themselves and therefore all should be covered by the ‘without prejudice’ rule, as would the scenario described in the article where parties in a mediation ‘may be willing to accept certain factual positions they would not otherwise agree to’. That is not a new fact but an interpretation about a fact.
In any event, if new tax facts were subject to the without prejudice rule, any disclosure of them during the mediation process would still result in them having been brought to the attention of HMRC caseworkers who could not then ‘unhear’ what had been disclosed. In those circumstances with that knowledge HMRC could start a line of enquiry to elicit their disclosure or, if need be, produce the same result under careful cross-examination in court.
The words ‘tax facts’ were introduced to better and more objectively identify what the HMRC guidance already provided in CC/FS21 when in respect of the confidential and without prejudice nature of the process it stated: ‘if you tell us something which significantly changes your tax or penalty position, or provides evidence of criminality, it must be shared with HMRC and may be used in formal proceedings’.
So, in effect the word ‘something’ was replaced with ‘tax fact’.
In retrospect, it would have been helpful to make this link in the guidance to allay concerns that HMRC was introducing a new policy, which I do not believe was its intention.
The guidance (at ADRG01800), comments on the term ‘without prejudice’ and states it ‘has a precise, and quite narrow meaning, often misunderstood both by officers and customers’.
Perhaps we should now turn our attention to this rule and agree how it applies to all interactions between HMRC and the taxpayer, not just in the ADR process.
Peter Nias, Pump Court Tax Chambers
We note this reply to our article and welcome the debate this topic has sparked. However, we do not agree with Mr Nias’s views.
Mr Nias’s commentary states that there is nothing new in the guidance. We do not agree. The prohibition on a single joint facilitator, the strict parameters for the ADR process, the departure from the principle of confidentiality and the concept of ‘tax facts’ were set out in writing for the first time in HMRC’s newly published manual. We consider they go against the tribunal’s practice statement and the established principles of mediation.
Regardless, longevity is not a good reason for poor policy. Our article had two purposes: to highlight the shortcomings of HMRC’s approach, and to call on HMRC to reconsider their stance. We remain of the view that the current guidance and process are ultimately unhelpful and would urge HMRC to review and amend its policy. The overarching concern is that HMRC’s approach to ADR is to seek to control it and, if necessary, to retain the ability to take advantage of it. Negotiations need ‘two to tango’ and these changes do little to attract taxpayers to the table.
David Pickstone & Anastasia Nourescu, Stewarts
.jpg?sfvrsn=2000b67e_1)
.tmb-editorspic.jpg?sfvrsn=df04ab27_1)
