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HMRC’s approach to Collaborative Dispute Resolution Geoff Lloyd Director, Dispute Resolution, HMRC 26 May 2011. CDR – an update. Context Recent developments Role of taxpayers and agents What next?. The CDR challenge.
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HMRC’s approach to Collaborative Dispute ResolutionGeoff LloydDirector, Dispute Resolution, HMRC26 May 2011
CDR – an update • Context • Recent developments • Role of taxpayers and agents • What next?
The CDR challenge “Behavioural changes are needed to make alternative dispute resolution work well. Taxpayers have to change, their advisers have to change, but tax administrations have to change most.” Dave Hartnett, Round table discussion: dispute resolution, Tax Journal, 19 April 2010
Context for CDR • HMRC’s customer-centric business strategy • Relationship management approach • Range of routes to resolving disputes • Spending review • Corporate tax roadmap
HMRC’s customer-centric business strategy “All the changes HMRC is making to the way it operates are aligned to the Department’s Customer-Centric Business Strategy. In simple terms, HMRC’s approach is to put customer understanding at the heart of all its activities and plans, so that the Department maximises its influence on customer behaviour as it seeks to achieve its objectives.” HMRC Change Plan, 28 February 2011
Relationship management approach “Building a better relationship with our large business customers has enabled us to improve our commercial awareness and focus resources on the biggest, most significant tax risks. This has improved our compliance results and customer satisfaction so has proved to be a cost-effective model for ensuring the ongoing compliance of our large business customers. Our approach to risk has been supported by the risk management framework. Despite making progress there is more we can do, and in future, we hope to improve resolution of issues by working more in ‘real time’.” Kate Ramm, HMRC view: compliance and engagement, Tax Journal, 18 October 2010
Range of routes to resolving disputes “HMRC’s approach is to seek to resolve disputes as efficiently as possible, securing the tax due under the law at the least cost to HMRC and at the least cost (in the widest sense) to our customers. “We intend to make increased use of collaborative dispute resolution tools and techniques as a means of reaching agreement with our customers on their tax liabilities … not least because that is likely to be a far more cost effective route for both parties to establish what is the “right tax”. “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 LSS will continue to govern how all disputes, large or small, are resolved in a way which gets to the “right tax”. Geoff Lloyd and Anthony Inglese, View from HMRC: dispute resolution, Tax Journal, 10 January 2011
Spending Review “HMRC will play a vital role in reducing the deficit, refocusing its resources to maximise revenues.” David Gauke, Exchequer Secretary to the Treasury, 20 October 2010
The Corporate Tax Road Map “… developing and maintaining effective relationships, as HMRC are doing with their large business customers, enables a strong focus on the most significant issues and quicker resolution of tax disputes, helping to improve both tax compliance and the customer experience.” Corporate Tax Reform: delivering a more competitive system, HM Treasury, HM Revenue & Customs, November 2010
Recent developments • ADR pilot for large business and complex cases • ADR pilot for SMEs • Litigation and settlement strategy • HMRC change plan
ADR pilot for large business and complex cases “For me, the introduction of a formal mediation process is a “win-win” for all parties involved in tax appeals.” James Bullock, McGrigors, Tax disputes: the way forward, Tax Journal, 2 August 2010 “A facility which enables parties to a dispute to think differently, to seek collaborative 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.” Paul Morton, Reed Elsevier, 2010 review: In-house tax teams,Tax Journal, 20 December 2010 “Ernst & Young has been involved in a number of the cases in the pilot and our experience has been positive. It is proving to be the case that a key benefit of mediation, just like in the commercial world, is in bringing the parties back together, in a way that injects fresh vigour into discussions and negotiations, and, in particular, encourages a willingness to look at matters from a different viewpoint.” Ernst & Young, Under the Spotlight, March 2011
ADR pilot for SMEs “The Tax Faculty welcomes any initiative which will enable the taxpayer to get a satisfactory resolution of a dispute in an efficient way. We support the pilot and have taken part in discussions with HMRC about the way the pilot will operate.” ICAEW, Tax Faculty Team, 15 February 2011
Litigation and Settlement Strategy “… it is clear that a number of misunderstandings persist about how the LSS operates in practice. … In the face of such perceptions, we are seeking to re-emphasise that the thrust of the LSS is to seek a collaborative, and agreed, outcome to disputes wherever possible …” Geoff Lloyd and Anthony Inglese, View from HMRC: dispute resolution,Tax Journal, 10 January 2011 “In practice, closer attention to binary issues has often revealed a more complex position or intermediate technical bases for settlement which were not immediately obvious at the start of discussions.” PWC, Tax First, February 2011
HMRC Change Plan “For Large Business customers, HMRC will continue with its current approach, which has already improved the customer experience and increased tax revenues. In addition to this, HMRC will invest more in relevant skills for the Department’s people to improve understanding of tax risks, tax avoidance and what drives commercial decisions. ….. “Delivering the large business strategy, including a relationship-managed service for HMRC’s largest customers, prioritisation of the Department’s highest risks, a focus on early identification and resolution of problem policy areas, and coordination of all contact and interventions through the Customer Relationship Managers.” HMRC Change Plan, 28 February 2011
Role of taxpayers and agents “Companies may need to consider approaching existing tax issues in a new way for a number of reasons. …. A legacy of disputed tax issues can drain the resources of the tax function and in extreme cases can inhibit the making of key decisions for the business as a whole. A managed approach to clearing disputed tax issues with HMRC can free up valuable resource and help provide certainty on tax exposures. … Our approach helps you resolve disputes collaboratively with HMRC enabling you to stay in control of the process..” KPMG, Resolving Tax Disputes, December 2010 “The Litigation and Settlement Strategy, the new Tax Tribunals system and the increasing influence of EU law on the operations and activities of businesses in the UK make it important for you to understand the role that tax dispute resolution might play in your business. … Our primary objective is to help our clients to prevent disputes with HMRC wherever possible. If a dispute is unavoidable, we will help you to resolve it as quickly and efficiently as possible.” Deloitte, Tax Dispute Resolution, 2011
What next? • Is HMRC’s approach well understood? • Future litigation and settlements? • Future tax mediation? • What disputes in a ‘real time’ world?
It’s good to talk “I think we need to distinguish between negotiation and dialogue. What really matters is the dialogue - so we can ensure all decisions are based on a real understanding of each other's positions. “Somehow both we and our customers seem to lock horns too early, writing long letters and sharing Counsel's opinions, yet somehow never really getting to the heart of the debate. Ultimately this is about getting enough trust between us to have the dialogue needed to understand each other.” Freda Chaloner, Tax Disputes and ADR, Tax Journal, 27 July 2009