Taxation Law - Taxation Disputes - Resolution

Taxation disputes arise for either legitimate or illegitimate reasons. Restructuring one’s affairs on an illegitimate basis leads to the most acrimonious and expensive taxation disputes which may involve appeals to the Administrative Appeals Tribunal, Federal Magistrates Court, Federal Court and High Court. Some extremely wealthy taxpayers take the view that they can afford to run a matter in any jurisdiction and continue to resist and fight the ATO hoping this will lead to a compromised settlement with little personal inconvenience other than the payment of money. Some of these individuals are prepared to spend $5M-$10M a year to do this but this approach is ill-conceived and counter-productive. This strategy has no legitimate foundation and rarely produces a positive outcome.

At one time this may have been productive but no longer. The courts are there to deal with matters on their merits not fanciful propositions and to examine any arrangements entered into to ensure they are legitimate before dealing with the parties on a fair and equitable basis. Where tax fraud is detected irrespective of the form it takes including the amount of money involved the courts will enforce the law which invariably favours the Commissioner of Taxation in most cases. Where the behavior exhibited is such that a court exercising criminal jurisdiction believes that the taxpayer has breached the criminal law then a custodial term will result and deterrence will become a major objective demonstrating to the community this type of behavior will not be tolerated. 

Large scale taxation disputes may involve legitimate differences of opinion between taxpayers and the Tax Office and these will be resolved civilly either in favour of the taxpayer or not. In these cases penalties and interest may apply, or where an reasonably arguable position has been taken by the taxpayer and his advisers which, where properly formulated, the consequences will be diminished. Even though these matters may be hotly contested at times there is little likelihood of criminal consequences. In contradistinction there are those taxation disputes which lack a prurient underlying tax rationale upon which various arrangements are structured and which receive the closest possible scrutiny by the Tax Office in order to stamp out this type of non-complying behavior. It is these taxation disputes which need to be effectively managed and which most tax advisers get wrong. 

Where taxpayers are involved in transactions, arrangements or schemes which lack substance and perhaps form they need to adopt a non-adversarial position in order to achieve the best possible outcome. Yes it costs money but retaining advisers who understand that the best possible results are achieved by engagement rather than disputation with the Tax Office is to be preferred in just about all circumstances. Of course these matters are just as much taxation disputes as any other but the secret lies in the manner in which and the path taken to resolve them. 

In most cases the taxpayer will in the normal course be entitled to reply upon protections afforded by legal professional privilege. Why would anyone in their right mind want war rather than engagement and reconciliation allowing for proper reparation to be made the major benefit being the diffusing of circumstances which will assist to mitigate the criminal nature and character and therefore consequences of what has been done. In many cases where this approach is taken a custodial term may not result provided that the adviser retained has the requisite expertise. 

For competent, professional advice and assistance contact Frank Egan of LAC Lawyers on (02) 9904 6800.