On October 15, the Commissioner of Taxation, Chris Jordan, announced the release of the ATO's refreshed Code of Settlement. The new Code is 2 pages in length, a significant reduction from its 45-page predecessor! The new Code is part of Chris Jordan's 'sensible' approach to the administration of tax law, which encompasses clearing aged disputes and a renewed focus on alternative dispute resolution. The time is ripe for reaching settlement agreements with the ATO in appropriate matters.
In March of this year Chris Jordan confirmed that the number of ATO settlements in the past two years has increased by around one-third. This reflects Chris Jordan's emphasis on reaching pragmatic, commercial solutions in appropriate cases rather than a position of requiring legal clarification of the matters in dispute as a matter of course.
The new Code of Settlement highlights that the relative strength of the parties' position, the cost versus the benefits of continuing the dispute and the impact on future compliance for the taxpayer and broader community are key considerations for the ATO in deciding whether or not to settle a dispute. The Code confirms that settlement will not be considered where there is a contentious point of law which requires clarification, it is in the public interest to litigate or the behaviour is such that there is a need to send a strong message to the community.
Significantly, the Code highlights that either party to a dispute can initiate settlement discussions and that this can occur at any stage, including prior to assessments being raised. Further, alternative dispute resolution approaches may be used during settlement negotiations.
A prime example of the ATO's fresh approach to dispute resolution has been the introduction of the independent review process for large businesses. This involves an ATO officer from the legal team, independent of the audit team, reviewing the matter at the audit stage with a fresh set of eyes. This has had a successful pilot of 10 cases and will now be expanded to include GST matters for large businesses. Other alternative measures include in-house facilitation and the use of third parties such as former Federal Court judges to undertake a neutral evaluation of the matter.
The feed-back from those who have been involved in alternative dispute resolution methods has been very encouraging, including when facilitation is conducted by in-house ATO staff. The key appears to be bringing in a person who has not been involved at the audit stage to provide a fresh set of eyes.
The new Code of Settlement is supported by a practical guide and four model deeds, with the Code emphasising that settlements must be finalised by the parties signing a written agreement which sets out the terms. The new model deeds include both short-form versions and a version specifically for GST disputes.
The Gadens Tax Team has assisted clients to resolve tax disputes with the ATO at all stages and utilising all methods, including litigation and alternative dispute resolution. The launch of the new Code of Settlement provides a good opportunity to engage with the ATO and, in appropriate matters, to take advantage of the ATO's willingness to explore alternative dispute resolution methods.