Resolve tax disputes more efficiently and cost effectively
Ongoing tax disputes can drain valuable resources and cause financial loss.
Alternative Dispute Resolution (ADR) offers a change of direction to the tax disputes many organisations face and a valuable alternative for cases destined for litigation.
How does it work?
Accredited mediators from EY help to facilitate a more collaborative way of working, often providing a fresh view on long-standing disputes and identifying opportunities to reach settlement.
ADR works because both parties work together over a short period to explore facts, identify areas of difference and work to understand the other party’s position in order to resolve differences. The process is often a much more effective way of addressing and resolving disputes compared with the typical approach of lengthy exchanges of correspondence.
What are the benefits?
EY’s market-leading ADR service has helped organisations successfully settle long-standing disputes, resolving them quickly with consequent time and cost savings for both parties.
EY has unparalleled experience of the ADR process, with a team knowledgeable on the technicalities and tactics needed to settle disputes.
The team includes Geoff Lloyd, the former Head of HM Revenue & Custom’s (HMRC) Dispute Resolution Unit, who was responsible for introducing and piloting ADR for tax in the UK, and trained mediators who can give practical, first hand insights on how mediation works.
Is my case suitable for ADR?
ADR can benefit those locked in long-running disputes. Below is a list of some situations in which ADR may be a practical option:
- The dispute is factual rather than technical and there is likely to be a range of possible outcomes
- Positions have become entrenched on an apparently ‘all or nothing’ technical issue, but there is scope to explore potential alternative technical analyses
- The nature of the particular issue means litigation is unlikely to offer a cost effective or efficient resolution (e.g., fact specific or limited precedent value)
- There is uncertainty over the facts and/or which facts are relevant
- There is a lack of clarity or understanding regarding the parties’ respective technical positions
- Attempts to work collaboratively or agree a resolution have stalled, and a facilitated process may help the parties work together better to try and reach a resolution.
Collaborative meeting leads to agreement
A business had been provided with financing from its overseas parent, and a potential omission with regards to withholding tax deducted on interest payments came to light. However, in the eventuality that there was a withholding tax liability, the business was entitled to make a claim for relief from the withholding tax obligation if made in time. HMRC considered that both a withholding tax liability arose and that the claim time limit had expired, which left the business with a potential tax liability but no relief. Assessments were raised totalling over £500,000.
EY supported the client in an ADR process which enabled both parties to explore a range of arguments and better understand the dispute’s underlying facts in an environment focused on collaboration. A range of technical considerations were explored, including HMRC’s ability to raise the assessments, whether there was an obligation to withholding tax, and whether the business was able to make a claim for relief if a liability arose. The ADR process shifted the process from lengthy exchanges of correspondence to meetings where the ADR facilitator was able to help the parties reach a consensus view on the appropriate treatment.
Through the ADR process and a deeper understanding of the facts, HMRC agreed that no obligation to withholding tax arose and the assessments were cancelled.
Better understanding the facts results in assessments being withdrawn
A multinational business had received an enquiry in respect of an investment which had made losses due to a major change of strategic direction across the group. HMRC had been seeking to establish through the enquiry whether the loss was in some way uncommercial, but, faced with impending time limits, raised assessments to income of over £100m before the facts had been fully established.
EY was asked to support the client after the assessments had been raised and immediately sought to work with HMRC to clarify the risks the Inspector had identified and ensure the facts were fully understood and the technical arguments re-evaluated. The parties met with the business with support from EY and took the time to explain events to HMRC, the change of strategic direction, and the evidence to support each explanation. The facilitated discussion then turned to applying the newly established facts to the statutory provisions and a clearer understanding of the points which needed to be addressed in order to resolve the dispute. Through such an approach both parties were able to agree the facts and share their respective views of the appropriate tax treatment. This proved to be much more effective than using written correspondence to gather the facts without a clear understanding of the risks.
Following a further submission of facts a proposal was made to reach settlement which led to the assessments being cancelled within 11 months of being issued.
10 year old dispute resolved within 12 months and avoided litigation
A business had been in dispute with HMRC, and, at the point when closure notices were issued it had been 10 years since the enquiry had been opened with no prospect of a resolution. The company considered it had strong technical arguments and wished to litigate the matter, but decided to change advisor and asked EY to help.
As part of our preparations we revisited the underlying facts and explored the range of outcomes which litigation might potentially determine. We approached HMRC to share a series of ‘decision trees’ which we considered illustrated all the questions a Tribunal judge would have to address and the potential ramifications of each decision. This approach proved incredibly helpful in agreeing with HMRC where we were in disagreement (and why), where we were not, and to explore in an open discussion all of the potential outcomes at Tribunal.
Through this collaborative discussion we were able to identify one route which all parties agreed was a possible outcome from the Tribunal hearing which did not include any points on which we were in dispute. The parties then worked together to develop a settlement submission which was eventually agreed within 1 year of our appointment as advisors.
The outcome resulted in a significant reduction in cost for both the business and HMRC by being able to avoid a lengthy and costly litigation process.
3 year stalemate, energised in 2 hours
A UK FTSE 250 group was in dispute with HMRC on a VAT issue that was headed for litigation – with Tribunal dates set and voluminous document bundles already exchanged. Another advisor had been leading the enquiry for some 3 years, before we were instructed to review the issue and try to resolve the matter collaboratively.
EY took a collaborative approach to the issue, despite the length of time it had already been under enquiry, starting with making sure everyone had a good grip of the facts. We did this though an interactive session around a whiteboard, changing the diagram of the transactions, and the relevant labels, until everyone was happy that it reflected the transaction as they understood it. That took roughly two hours, after which the HMRC technical expert said spontaneously that more progress had been made in those two hours than in years of enquiries to date.
The whiteboard session managed to narrow down the issues to a single question, which turned mainly on the operation of trust law, and we jointly agreed on a further piece of analysis on that trust law point which allowed the dispute to be settled to the satisfaction of both parties.
This saved HMRC and the taxpayer the costs – and uncertainty – of a tribunal appearance which could have lasted three or four days.
Contact our ADR team
If you have an ongoing tax dispute which could potentially benefit from entering the ADR process, we would be happy to discuss your requirements and opportunities.
UK and Ireland
UK and Ireland
Paul is a former HMRC Investigator who has helped numerous clients from a huge range of industries.
As an expert with nearly 20 years’ experience of tax disputes he is well placed to understand and advise on the risks businesses face.
Geoff is an Associate Partner in EY's Tax Controversy and Risk Management practice where he helps clients resolve tax authority enquiries and disputes.
Geoff joined EY from HM Revenue & Customs, where he held various senior policy, technical and management roles, including bringing about the introduction of ADR as a means of resolving UK tax disputes and relaunching the HMRC's Litigation and Settlement Strategy.
Geoff is accredited as a mediator by the Centre for Effective Dispute Resolution and the ADR Group and was winner of CEDR’s ADR Champion award 2012.
Jim leads EY’s Tax Controversy and Risk Management team.
He has managed and successfully resolved significant tax disputes with HMRC, pulling on valuable experience from his secondment to HMRC’s Dispute Resolution Unit. Here he developed and led HMRC’s ADR pilot for Large Business and drafted HMRC's ADR guidance. He also worked alongside HMRC's case teams to help them resolve a number of disputes, and drafted and re-launched HMRC’s Litigation and Settlement Strategy (LSS), the framework within which it settles all disputes.
Jim is an mediator accredited by the Centre for Effective Dispute Resolution and a member of the Chartered Institute of Taxation. He sits on the Management of the Taxes Technical Sub-Committee, and a Committee member of the Tax Investigation Practitioners Group.