The Settlement Of Tax Disputes
By Philip Baker QC, Hui Ling Mccarthy & Laurent Sykes
Posted: 2nd January 2013 12:58
Tax disputes happen. This is an inevitable consequence of complex tax systems and complex fact matrices. The important thing is that they are either avoided – if possible – when tax advice is given, or, if they cannot be avoided, that they are resolved satisfactorily.
Tax barristers belong to that part of the UK legal profession who are specifically trained in dispute resolution. We have rights of audience in all courts and tribunals in England and Wales. To a greater or lesser extent we are all involved in litigation and other forms of dispute resolution. Even if we are primarily engaged in tax advisory work, the potential for a dispute to arise always informs our advice.
Tax disputes come in different shapes and sizes. Recently, a member of Gray’s Inn Tax Chambers was instructed on behalf of HM Revenue & Customs in a case where a taxpayer had claimed a benefit under a tax treaty. The issue that arose was one that was relevant to many of the 3,000 or more tax treaties in operation around the world (the issue concerned the difference in a tax treaty between the phrase “liable to tax” and the phrase “subject to tax”). The member of chambers won the case, establishing a precedent which is likely to be studied in many countries around the world (see Weiser v HMRC  UKFTT 501 (TC)).
The much-publicised Vodafone India case was heard in the Supreme Court in Delhi through much of the summer and autumn last year. One of the members of Gray’s Inn Tax Chambers was an expert for the successful taxpayer in that case, and attended most of the hearing to give his input to Counsel for the taxpayer.
Members of Gray’s Inn Tax Chambers are not only involved in disputes between taxpayers and tax authorities; it is not uncommon for tax-related disputes to arise between private bodies as well. Members of Gray’s Inn Tax Chambers may be called to assist in preparation for, and conduct of, any ensuing litigation. For instance, a tax deed may be entered into where one group of companies sells one or more companies to another group of companies, and this document may give rise to litigation which falls to be resolved in the civil courts. A member of Chambers won such a case in the High Court earlier this year.
Expertise in UK tax law (including international tax matters) and in the settlement of tax disputes are key roles of members of Gray’s Inn Tax Chambers.
In recent years, the types and nature of dispute resolution procedures has grown and changed. In terms of regular tax litigation, the old structure of General Commissioners, Special Commissioners and VAT Tribunals (with appeals from those tribunals being heard by the High Court) has been replaced by the Tax Chamber of the First-tier Tribunal (with appeals being heard by the Tax and Chancery Chamber of the Upper Tribunal). Further appeals lead into the normal structure of the Court of Appeal and the Supreme Court (which has itself replaced the House of Lords as an appellate body). These tribunals and courts may make references to the Court of Justice of the European Union, and occasionally cases proceed beyond the Supreme Court to the European Court of Human Rights. Members of Gray’s Inn Tax Chambers have experience of appearing in cases before all of these courts, with a large number of appearances before the Supreme Court, Court of Justice, and Human Rights Court.
A small number of commonwealth jurisdictions have retained appeals to the Judicial Committee of the Privy Council in London (which sits in the same building and with the same judges as the Supreme Court). Members of Gray’s Inn Tax Chambers have appeared frequently before the Judicial Committee.
Disputes that arise under a double taxation convention are subject to their own, rather peculiar and unique form of dispute resolution. This is referred to as “competent authority procedure”, “mutual agreement procedure” or “MAP”. It is unusual because the procedure is one of seeking agreement between the competent authorities of the two countries concerned: technically, the taxpayer is an outsider, merely supplying information and encouraging the two authorities to reach an acceptable agreement. In practice, some competent authorities allow much more involvement by the taxpayer than others. This is an area where there is a growing amount of experience acquired by members of Gray’s Inn Tax Chambers.
MAP will not always resolve a case where the two competent authorities are unable to reach agreement. In order to avoid that scenario, a development of the last two decades has been the introduction of arbitration, particularly with regard to transfer pricing disputes. This started in Europe with the Arbitration Convention, and was taken up by the OECD by including provision for arbitration in the Model Convention. So far, there have been few actual arbitrations. However, tax barristers have training for these types of disputes, and one member of Gray’s Inn Tax Chambers is a member of an arbitration panel to resolve disputes under tax treaties.
More generally, attention has been shifting in recent years towards the use of “alternative dispute resolution” or “ADR” in resolving disputes between taxpayers and the tax authorities.
Some large, international tax disputes (where many billions of pounds or dollars may be at stake) may not be particularly suited to be heard by local tax tribunals. Arbitration of these disputes has begun to appear as one form of ADR. These arbitrations have arisen under various international agreements, including bilateral investment conventions and the Energy Charter. Members of Gray’s Inn Tax Chambers have already had some involvement with these arbitration cases.
Another form of ADR which has been developing in the UK in the last two years is mediation. In essence, a third party who has not previously been involved with the dispute is brought in to facilitate negotiations between the parties with a view to reaching agreement without the need to go to the tribunal. Mediation differs from arbitration in that the mediator does not make binding decisions. In 2010, HM Revenue & Customs launched an initiative piloting the use of this form of ADR. The pilot has been run in two streams: one for large and complex disputes, the other for tax disputes involving small and medium enterprises. Both streams have resulted in a high proportion of cases selected for ADR being settled without recourse to litigation and in a cost efficient manner. Two members of Gray’s Inn Tax Chambers have been accredited as mediators by the Centre for Effective Dispute Resolution (CEDR).
Tax disputes are inevitable, and skilled advice is needed to resolve these disputes successfully. This is where the profession of tax barristers particularly come into their own and provides a need for the skills held by members of Gray’s Inn Tax Chambers.
Philip Baker is a barrister and QC practising from Grays Inn Tax Chambers. He was called to the bar in 1979, began practising in 1987 and took silk in 2002. He specialises in international tax issues, with a particular emphasis on double tax conventions, and on European Union law and taxation. He has a particular interest in the European Convention on Human Rights and taxation.
Before moving into practice, he taught law for seven years at the School of Oriental and African Studies, London University. He was subsequently a visiting professorial fellow at Queen Mary University of London, and is now a senior associate fellow of the Institute of Advanced Legal Studies, London University. He is the author of Double Taxation Conventions and International Tax Law and the editor of the International Tax Law Reports.
Laurent Sykes advises on business taxation at both the company and shareholder level. He has a special interest in the interplay between tax and accounting (and is a qualified chartered accountant as well as a barrister), and in the taxation of partnerships. He also advises extensively on employment tax matters. His private client practice is broad but has a particular focus on the tax treatment of non-UK domiciled individuals. Litigation is an important part of his work and has taken him to the Tax Tribunal, the High Court and the Court of Appeal.
Hui Ling McCarthy is a barrister and CEDR accredited mediator. She specialises in VAT, CGT, business and corporate taxation and has a particular interest in cases raising avoidance / abuse of rights, human rights or accounting issues. She has an increasing presence in multi-million pound cases, most recently representing the pension trustees in Equity Trust Singapore Ltd before the Court of Appeal and acting for HMRC in one of the first SDLT avoidance schemes to proceed to litigation, Vardy Properties. Hui Ling was shortlisted as “Taxation’s Rising Star” in 2009 and was included in Tax Journal’s “Top 40 under 40” in 2011.
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