The disputes resolution process - an amalgamation or real changes?
Tax alert - June 2022
By Virag Singh & Claudia Layton
The disputes process is an uncertain time for any taxpayer that finds themselves embroiled in a tax dispute, often having to deal with a concepts, terms and processes that most will have not previously encountered. The Inland Revenue has recently published an eighty-three page draft Standard Practice Statement ED0240 – Disputes Process (the SPS) for public consultation. The SPS combines SPS 16/05 (Disputes resolution process commenced by the Commissioner of Inland Revenue) and SPS 16/06 (Disputes resolution process commenced by a taxpayer) and sets out each phase of the disputes process, detailing the rights and requirements of both the taxpayer and the Commissioner of Inland Revenue.
The SPS is intended to be not only be an amalgamation of the old SPS 16/06 and SPS 16/06, but also incorporates some recent legislative changes and clarifies certain aspects of the policy behind the disputes process. Once finalised, the SPS will replace both SPS 16/05 and SPS 16/06.
Qualifying taxpayers can have their income tax assessment corrected without issuing a NOPA
A taxpayer whose income consists solely of “reportable income”, for example salary and wages and interest income, will be a “qualifying taxpayer”. Qualifying taxpayers who consider their pre-populated assessment to be incorrect can provide to the Commissioner information which details why the assessment is incorrect rather than issuing a NOPA.
Requirements of a qualifying taxpayer to correct their pre-populated income tax assessment
With the introduction of the “qualifying taxpayers” concept, the SPS details how qualifying taxpayers can correct their pre-populated assessment. When a taxpayer considers their pre-populated assessment to be incorrect, the taxpayer must advise the Commissioner of the reasons why the assessment is incorrect and provide, by the taxpayer’s terminal tax due date, the relevant information to correct the pre-populated assessment. It is important to note that while a qualifying taxpayer can change their pre-populated assessment, the Commissioner does not have to accept the change if they have reason to believe it is incorrect.
If a taxpayer does not provide the relevant information by their terminal tax due date, the taxpayer is deemed to have filed a return and made an assessment on that date. The taxpayer can still dispute their assessment but will have to issue a NOPA to the Commissioner to do so.
Expansion of the definition of “disputable decision”
A disputable decision is broadly defined to include an assessment and a decision of the Commissioner under a tax law. There are however specific exclusions to this definition. The SPS includes three new exclusions relating to COVID-19 support.
The SPS also reiterates that a decision by the Commissioner not to exercise a discretion under s 113 of the Tax Administration Act 1994 (the TAA) to amend an assessment is not a disputable decision.
While the excluded decisions listed in the SPS cannot be disputed specifically, if the Commissioner issues an assessment based on one of the excluded decisions, the taxpayer can challenge the correctness of the assessment on the basis that the Commissioner’s determination on which that decision was founded is wrong in fact or law.
The SPS clarifies existing policy statements that address where the Commissioner is considering prosecution; the validity of a taxpayer’s dispute documents; and situations where either the Commissioner or the taxpayer wish to propose another adjustment or, where the Commissioner wishes to propose a fresh or increased liability.
Where the Commissioner is considering prosecution
The disputes process contains provisions compelling a taxpayer to provide certain documents, for example, in respect of an alleged tax liability. Therefore, the Commissioner must use their information gathering and dispute process powers with care to ensure taxpayers’ fair trial rights, are upheld throughout the disputes process.
To ensure that taxpayers’ fair trial rights are upheld, the Commissioner will advise a taxpayer that the Commissioner is contemplating taking prosecution action against them, they can voluntarily choose to continue with the disputes process; and that exceptional circumstances can exist under s 89K of the Tax Administration Act 1994.
While a taxpayer may choose to continue with the disputes process when the Commissioner is contemplating prosecution, any information in a disputes document that the taxpayer provides (such as a NOPA, Notice of Response (NOR) or Statement of Position (SOP)) could be used against them in criminal proceedings. It is therefore crucial that taxpayer’s seek legal advice before deciding to continue with the disputes process (which a taxpayer can discontinue at any stage).
The validity of a taxpayer’s dispute documents
The SPS makes it clear that when the Commissioner receives a NOPA, NOR or SOP from a taxpayer, it is only the courts, and not the Commissioner, that can invalidate the document. In the case of a taxpayer’s NOPA or NOR, unless it is incomprehensible or provides no argument to which the Commissioner can respond, the document will be accepted as valid.
Where the Commissioner or the taxpayer wish to propose another adjustment or, the Commissioner wishes to propose a fresh or increased liability
Once the disputes process is started, if either party wishes to propose another adjustment, or if the Commissioner wishes to propose a fresh or increased liability after a NOPA has been issued, this must be done by issuing a further NOPA. Neither the taxpayer nor Commissioner can simply include the additional adjustment in a subsequent disputes document for an existing dispute.
Is it better?
Aside from updates for law changes, it’s questionable whether the SPS improves the guidance for taxpayers and advisors. In the previous guidance, taxpayers had a single document explaining the disputes process they were in (i.e. a Commissioner initiated or taxpayer initiated dispute), and that guidance was clear and logical to that process; including a helpful summary table setting out the disputes steps and timeframes (including explaining the critical first step of the due date for the NOPA using an example). Now it is necessary to wade through information which is not necessarily relevant to the process you are in, adding stress into a process where is necessary to have a clear understanding of the rules and associated deadlines to avoid falling out of the process and being deemed to accept the other parties’ views.
Deadline for comment on the draft SPS is Friday 24 June.
For advice on what these changes could mean for you, navigating the disputes system, or any general tax disputes queries, please contact your usual Deloitte tax advisor.