The report to the Assistant Treasurer of the Inspector General of Taxation’s (IGT) review intoThe Management of Tax Disputes was released last Friday.
The key recommendation made by the IGT is for the establishment of a separate and dedicated ‘Appeals Group’ within the Australian Taxation Office (ATO), to deal with all pre-assessment reviews, objections, litigation and settlement of disputes. The appointment of Second Commissioner of Taxation to oversee the Appeals Group was also recommended, with the aim of ensuring that the group was as independent as possible from the ATO.
Framework for review
The report provides and insightful review of the IGT’s inquiries into the management of tax disputes, which revealed that the primary concern of many taxpayers was a lack, or perceived lack, of independence between the ATO’s original decision makers and the officers reviewing such decisions via the objection, review and appeals process.
This is supported by statistics which shows that in 2013-14, 85% of taxpayer disputes were resolved without hearing when they reached the AAT, indicating that a substantial number of cases were not appropriately considered through the objection process.
The report also outlines the IGT’s investigations which show that the ATO has the least separation between its original decision and the appeals process when compared to revenue authorities in similar jurisdictions, including the United States, Canada, the United Kingdom, New Zealand and Ireland.
The IGT report recommends the establishment of a separate and independent Appeals Group, allowing tax disputes to be resolved independently from the ATO’s current ideologies and policies.
The new Appeals Group would manage and resolve tax disputes for all taxpayers, including the conduct of pre-assessment reviews, objections and litigation. The Group will also encourage the use of alternative dispute resolution throughout the dispute process.
Central to the structure of the new Appeals Group would be the appointment of a new Second Commissioner of Taxation, charged with oversight of the additional Appeals Group. The appointment to this role is paramount to ensure independence of the Appeals Group and achieve the greatest level of separation from the ATO’s original decision makers.
Although the scope of the IGT review was intended to focus on the determination of disputes in the Large Business and International and Highly Wealthy Individuals sectors, the report acknowledged the benefits of establishing an Appeals Group for all taxpayers.
The five key advantages to the Appeals Group outlined by the report are as follows:
- Centralisation of dispute management function – a new Appeals Group will provide all taxpayers with equal access to effective dispute management processes by providing a single channel for review;
- Enhancement of actual and perceived independence – a single Appeals Group will remove all objections from the ATO’s compliance group (where they are currently considered by officers of the same business line where the initial decision was made), allowing a separate group to evaluate the merits of the objection;
- Independent oversight and advice – the Appeals Group will be well placed to conduct and manage ATO litigation, including independent review of the merits of a case and will also assist in ensuring that the ATO’s approach to settlements would be in accordance with existing governance policies and in the best interests all parties;
- Centralising resources – the Appeals Group will act as a resource base for the ATO on all dispute resolution matters, particularly the use of ADR in the audit process to resolve disputes as early as possible. This will ensure effective ADR methods are used consistently to resolve taxpayer disputes and promote a culture of ADR within the ATO; and
- Synergistic benefits – a single Appeals Group will provide multiple opportunities for issues to be considered and the results fed back to the ATO to minimise future disputes and enable early intervention by dispute management specialists with a view to resolving disputes earlier or identifying matters suitable for test case funding.