‘Expert Mediation’ of Tax disputes? – Paragraph 16 of the HMRC Litigation and Settlement Strategy (the ‘LSS’) states, ‘Alternative Dispute Resolution (ADR), and more specifically facilitation or mediation, is a flexible dispute resolution tool available to HMRC which, in appropriate cases, can help HMRC and its customers resolve disputes (or reach key decision points) in a cost effective and efficient manner. The LSS applies to the resolution of all disputes through civil procedures. Therefore, any resolution of a dispute between HMRC and a customer, whether it’s resolution involved ADR or not, must accord with the terms of the LSS and specifically be a resolution which HMRC considers could reasonably be reached by a tribunal.’ While in principle any tax dispute may be resolved by either agreement or litigation, on its face, the LSS will not permit HRMC officers ‘to do deals.’ However, as Keith Gordon observes in paragraph 2.2.2 of the 5th edition of ‘Tax Appeals – Law and Practice at the FTT’ (2022), ‘In practice, deals can still be done, although it is usually necessary to show that the ultimate result can be reconciled with a possible outcome from the litigation (even if the justification for the outcome is not particularly logical).’ This is a question of mathematics. I.E if ‘A’ and ‘B’ are in dispute and A = 5 and B = 10, while a settlement for 7.5 is not possible (because that would be splitting the difference) a settlement for either 5 or 10, plus a proportion of costs would appear to be possible. What the Mediator needs to understand, is that the extent of flexibility depends upon the attitude of the officer and his/her willingness to reach an amicable settlement. In other words, these constraints are an opportunity for creative structuring of terms of settlement. Where there is a range of possible figures for tax due, HMRC will not settle by agreement for an amount which is less than it would reasonably expect to obtain from litigation, (the LSS paragraph 17). Therefore, the key to settlement is understanding the basis of that expectation. This is where an expert can assist the mediator and parties – see ‘Expert Mediation’ on the Mediation of ‘Probate & Trust Disputes’ page at www.ihtbar.com. Taking into account the decision in Wired Orthodontics Ltd v HMRC [2020] UKFTT 290 (TC), is it possible and practical to agree upon the appointment of an independent single-joint expert for the purposes of both Mediation and Litigation, i.e. provided the expert remains bound by mediation confidentiality following the Mediation?
I have been commissioned by Taxation (Tolley) to write an article in 2023 about the ‘Mediation of Tax Disputes’ and would be interested in hearing the views of tax partitioners about the Mediation of Tax Disputes. My contact details are set out on the ‘Consultation’ page at www.ihtbar.com.