Taxation Law - Negotiation

Negotiation is an art not a science.  Often clients forget this and do not really understand the process.  Butterworths Australian Legal Dictionary defines negotiation as "generally, mutual discussion and arrangements of the terms of a transaction or agreement."  Unfortunately this definition really doesn't go far enough as it does not reflect what this process is all about.  Some guidance is provided by the Concise Oxford Dictionary New Edition which defines negotiate as "confer (with another) with a view to compromise or agree or arrange (affair), bring about (desired result) by negotiating" or "clear, get over or through, dispose of, (fence, obstacle, difficulty)."

The art of negotiation is to gauge the expectations of not only your client but also of the other side in terms of whether or not there is an opportunity to discuss the matter to reach some form of compromise which will be in the interests of both parties.  It is important to understand that successful negotiations of whatever type depend upon one thing, that is, in order to conduct a successful negotiation the parties seeking to benefit must be far better prepared than the person or entities with whom they are negotiating.  In other words, no negotiation is ever going to be successful unless you know your case better than your opponent and can answer their criticisms allowing alternatives to be put which will lead to a successful outcome in the circumstances.

Often clients think negotiation is all about force feeding the other side your point of view and browbeating them into submission before walking away with a successful outcome.  This could not be further from the truth as negotiation requires a spirit of compromise and unless this is present then negotiations will fail.  Often clients wish to have a matter negotiated and instruct their solicitors to put a point of view which will never find favour with the other side because it lacks credibility or it has been put to them before and been rejected which will do nothing to advance matters and only lead to frustration and disappointment and a lack of credibility. Sometimes during the course of negotiations new material may surface which breathes new life into the matter transcending generalities by providing specifics which offers the opportunity to argue the merits of a case provided a weight to argument that was previously lacking.

As a tax practitioner it never ceases to amaze me how clients adopt a view of the law which is never going to be accepted purely and simply because they see it as a solution.  In tax, clients often want to trot out that tax law is inordinately complex, it lacks consistency, that there isn't a level playing field and that their client is being discriminated against because of a mere technicality or series of technicalities.  This argument just doesn't fly as tax law, like many areas of the law, is all about technical differences which are meant to address particular circumstances where parties are engaging in conduct to obtain an unfair advantage whether it involves the revenue or otherwise. 

In tax, there are a range of arguments which can be applied and all have their place but the most important one is that where you are negotiating the position has to have an underlying tax rationale otherwise it lacks credibility.  Where clients wish to adopt a position which is contrary to their best interests their adviser must be strong enough to inform them that if they push this type of argument too far it will rebound to their detriment.  A lack of information and poorly constructed arguments are anathema to negotiation and should be avoided at all costs.

It should be remembered that whenever you instruct lawyers to act on your behalf you should provide them with all information in your possession whether it favours you or not.  The reason being that once your adviser knows both the good and bad they can charter a course for you which will assist to achieve the desired outcome.  Unless your adviser knows the traps and pitfalls before they proceed negotiations are doomed to failure before they start as they are left to float in a sea of uncertainty lacking material to address properly constructed arguments advanced by the other side.  Preparation is the key to success whereas wishful thinking is nothing more than that - a gamble.

Sometimes there may be a number of preliminary discussions with the other side which may provide your adviser with the opportunity to examine any areas of weakness in your position allowing you the opportunity to address these before proceeding.  It is important to clear the air, have a clear understanding of your position, reposition yourself if necessary and rebalance yourself before proceeding and argue from a position of strength rather than weakness.  Ill conceived, poorly constructed arguments lack substance and therefore the ability to persuade the other side of their merits. 

In tax an enormous amount of work has to be done to develop a range of arguments which can be utilised to strengthen a client's position.  After all you are dealing with Australian Taxation Office which is the best resourced government organisation in this country.  Both clients and advisers alike tend to forget that the ATO draw their technical staff from the top 10% of university graduates in this country.  All of them are well-versed in tax and the majority of them are experts in their particular field(s).  Ill-considered, poorly constructed arguments are just not going to fly with them and unless clients are committed to providing their advisers with all relevant information about the matter they should not be surprised when negotiations fail.  Negotiation is all about arguing from a position of strength not weakness and convincing the other side of the merits of your case.