HMRC has updated its litigation and settlement strategy (LSS) and associated commentary, which governs its approach to settling tax disputes, whether through negotiation or civil litigation. Corresponding revisions have been made to the detailed ‘Code of governance for resolving tax disputes’. The core approach remains the same, although there are changes to take greater account of behavioural factors and shift the emphasis in some areas.
First published in 2007, the LSS was revised in 2011, with further minor updates in 2013. See here.
The updated LSS describes collaborative working, or seeking to resolve disputes by agreement, as HMRC’s ‘default approach’, departure from which is a ‘rare exception’. The LSS previously referred to collaborative working as ‘commonplace’.
The LSS now also refers to HMRC’s use of random enquiries ‘to validate the risk-based approach to compliance work’, with the overall aim of ‘securing the best practicable return for the Exchequer’ (the previous terminology being to ‘maximise revenue flows’). HMRC’s random enquiry programme involves the selection of a sample of returns for enquiry before there is any consideration of risk.
The updated LSS contains a modified definition of ‘risk’, which HMRC will use to describe the disputed tax treatment of a specific transaction or return entry with a particular taxpayer. Where the same risk applies to several taxpayers, HMRC will call it an ‘issue’.
The commentary also now refers to HMRC’s behavioural approach, including:
suspending inaccuracy penalties in certain circumstances, ‘only penalising those who do not agree to changes, or fail to implement them properly’; and
where the alternative outcomes are finely balanced, HMRC will consider not only the absolute amounts at stake, but also the taxpayer’s past and potential future behaviour, as well as the question of precedent value.
New sections have been added to the commentary to cover legitimate expectation and the role of judicial review, and disputes involving cross-border transactions and double taxation.
The commentary confirms that, in the interests of protecting the tax base: ‘HMRC will also defend litigation brought by customers who are seeking to challenge legislation or established practice.’ Greater weight is now given to witness evidence in tax avoidance cases, particularly for establishing the purpose behind a transaction.
The commentary now makes clear that: ‘HMRC is unlikely to agree terms for resolution of a dispute which do not conform with the correct tax treatment or its published guidance on the treatment of the risk within the dispute.’
In marketed avoidance cases, the commentary now describes how HMRC will seek to establish and share the points in dispute based on an agreed sample from a number of users of the scheme, where others accept that their documentation is similar. Further communication will then focus on the sampled documentation.
The Code of governance now contains additional information on specific arrangements for disputes involving transfer pricing/diverted profits. See here.
HMRC has updated its litigation and settlement strategy (LSS) and associated commentary, which governs its approach to settling tax disputes, whether through negotiation or civil litigation. Corresponding revisions have been made to the detailed ‘Code of governance for resolving tax disputes’. The core approach remains the same, although there are changes to take greater account of behavioural factors and shift the emphasis in some areas.
First published in 2007, the LSS was revised in 2011, with further minor updates in 2013. See here.
The updated LSS describes collaborative working, or seeking to resolve disputes by agreement, as HMRC’s ‘default approach’, departure from which is a ‘rare exception’. The LSS previously referred to collaborative working as ‘commonplace’.
The LSS now also refers to HMRC’s use of random enquiries ‘to validate the risk-based approach to compliance work’, with the overall aim of ‘securing the best practicable return for the Exchequer’ (the previous terminology being to ‘maximise revenue flows’). HMRC’s random enquiry programme involves the selection of a sample of returns for enquiry before there is any consideration of risk.
The updated LSS contains a modified definition of ‘risk’, which HMRC will use to describe the disputed tax treatment of a specific transaction or return entry with a particular taxpayer. Where the same risk applies to several taxpayers, HMRC will call it an ‘issue’.
The commentary also now refers to HMRC’s behavioural approach, including:
suspending inaccuracy penalties in certain circumstances, ‘only penalising those who do not agree to changes, or fail to implement them properly’; and
where the alternative outcomes are finely balanced, HMRC will consider not only the absolute amounts at stake, but also the taxpayer’s past and potential future behaviour, as well as the question of precedent value.
New sections have been added to the commentary to cover legitimate expectation and the role of judicial review, and disputes involving cross-border transactions and double taxation.
The commentary confirms that, in the interests of protecting the tax base: ‘HMRC will also defend litigation brought by customers who are seeking to challenge legislation or established practice.’ Greater weight is now given to witness evidence in tax avoidance cases, particularly for establishing the purpose behind a transaction.
The commentary now makes clear that: ‘HMRC is unlikely to agree terms for resolution of a dispute which do not conform with the correct tax treatment or its published guidance on the treatment of the risk within the dispute.’
In marketed avoidance cases, the commentary now describes how HMRC will seek to establish and share the points in dispute based on an agreed sample from a number of users of the scheme, where others accept that their documentation is similar. Further communication will then focus on the sampled documentation.
The Code of governance now contains additional information on specific arrangements for disputes involving transfer pricing/diverted profits. See here.
