4.1
The Commissioner in his 2010–11 Annual Report141 indicated a willingness to engage in ADR and through directions to ATO staff, such as PS LA 2007/23, the ATO has set out how and when ADR should be conducted. It should be appreciated that the ATO defines ADR broadly and includes within the definition ‘direct negotiation of disputes by the parties without outside assistance.’1424.2
To ensure consistency in this report the narrower definition of ADR is intended as outlined earlier. That is, it will be used to refer to processes in which an ADR practitioner assists the parties.4.3
The ATO has indicated that its preference in relation to resolving disputes is to first engage and negotiate directly with taxpayers. Such an approach is sensible and should operate to reduce some of the costs associated with resolving the dispute for both parties. Where direct negotiations fail to resolve disputes the parties must turn their minds to other methods or processes which may assist in resolving the matter, including engaging in processes assisted by an ADR practitioner.4.4
Having addressed early engagement in the chapter 3, this chapter will consider different aspects of ADR and the initiation of ADR where early direct engagement between the parties has failed to resolve the dispute.W
HEN ISADR
APPROPRIATE?
4.5
The AAT and NADRAC have acknowledged that, generally, all matters arepotentially suitable for ADR.143 While NADRAC identifies some factors which may render ADR inappropriate, such as lack of time, unmanageable imbalance of power or entrenched conflict, it cautions that factors such as these should not automatically dismiss the possibility of ADR.144 Submissions generally supported this approach.
4.6
As previously noted, while the ATO generally supports the use of ADR, it has stated that ‘not all cases are suitable for ADR’ and that ADR may not be appropriate where:145• it would be in the public interest to have judicial clarification of the issues in dispute and the dispute is a suitable vehicle to test the issues;
• resolution can only be achieved by departure from an established ‘ATO view’ on a technical issue; and
141 Commissioner of Taxation, above n. 95, p. 105. 142 Australian Taxation Office, above n. 40, para. 21.
143 Administrative Appeals Tribunal, Alternative Dispute Resolution (ADR) guidelines, Sydney, June 2006, viewed on 21 September 2011, <www.aat.gov.au>, p. 3; NADRAC, above n. 138, p. 3.
144 NADRAC, above n. 137, p. 4.
• the dispute is of a kind where the state of the relationship between the parties is such that any proposed ADR is unlikely to be successful.
4.7
In relation to the third dot point, the practice statement does not provide any further guidance or examples of the kind of dispute which is envisaged. It is unclear whether the determination that ADR is ‘unlikely to be successful’ is made by the ATO, the taxpayer or both. Absent further clarity, the IGT is concerned that such a statement may be relied upon by either ATO officers or taxpayers as justification to avoid engagement.4.8
Where it is accepted that ADR (including direct negotiation) is a useful vehicle for narrowing issues in dispute, clarifying evidence and fostering ongoing relationships as well as resolving disputes,146 ADR (including direct negotiation) may be employed in a much wider context. Furthermore, where the ATO is seeking to drive a cultural shift towards an earlier and better resolution culture, it should work to remove impediments such as that mentioned in the preceding paragraph.4.9
The IGT considers that the position the ATO should adopt is one which would bring ADR (including direct negotiation) to the forefront as the primary dispute resolution mechanism, rather than as an alternative. To this end, the ATO’s starting position should be that it is appropriate to engage in ADR (whether through direct negotiations or otherwise) unless there are clear reasons to the contrary.4.10
Such clear reasons should be limited to cases where associated costs and delays are disproportionate to the issues in contention or where a public benefit would be served by having matters judicially determined and ambiguous areas of the law clarified (as discussed below). Even where it is desirable to have a matter judicially determined, the IGT does not consider that there should be any barriers to the parties engaging in ADR to ensure a more streamlined approach in taking the matter to Court.R
ECOMMENDATION4.1:
The IGT recommends that the ATO adopt the principles espoused by the AAT and NADRAC, that all disputes are suitable for ADR (including direct negotiation) except where it would be clearly inappropriate. For example, where:
the cost and delay involved in ADR is disproportionate to the benefits to be derived, such as where the parties are in agreement as to the facts and the dispute turns on genuine and fundamental issues of law; there is a clearly identified public benefit in having the matter judicially
determined; or
there is a genuinely held concern that it is not appropriate to engage in dispute resolution, such as in cases of serious criminal fraud or evasion. The IGT further recommends that the implementation of this principle should be the subject of consultation with stakeholders as part of Recommendation 5.1.
ATO Response Agree.
The ATO is committed to minimising and resolving disputes as early as possible and actively participates with the AAT and NADRAC in dispute resolution. As noted by the Inspector General at paragraph 4.1, the Commissioner indicated in his 2011 Annual Report a willingness to engage in ADR. As is recognised in the recommendation, there are cases where it is not suitable or appropriate to enter formal ADR processes.
We agree that it might not be suitable to enter into ADR where such processes add extra steps, or create extra costs and the matter is otherwise quite straight forward. By way of context, in the vast majority of adjustments resulting from audits and reviews taxpayers do not seek a review of those decisions (about 4% in income tax cases) and only a very small proportion are not resolved at that stage through less formal processes (less than 3% of taxpayers objecting to an income tax adjustment go on to litigation).
We agree to the review of PS LA 2007/23 (see recommendation 5.1), in consultation with NTLG ADR Sub-committee.