Govt mulls mediation to solve tax issues with companies

New Delhi: The government may adopt a mediation mechanism that will help companies determine their future tax liabilities and even settle disputes, said a person familiar with the development. The concept, which is widely prevalent overseas, is being discussed amid preparations for the February 1 budget, the person said.

Mediation will allow taxpayers to get a fix on how much they need to pay and avoid disputes. “This will bring down litigation substantially,” the person said.

The mediation process involves examining tax legislation and all relevant facts in detail. Neutral mediators, chosen from a panel, will negotiate and arrive at a settlement. The decision is binding on both sides.

It is an established practice in some overseas tax jurisdictions to discuss and negotiate tax issues and disputes across the table between taxpayer and tax administration, with an earnest intent to resolve matters

-Vikas Vasal, Grant Thornton

The government could also look at expanding the Dispute Resolution Panel mechanism, which handles transfer pricing disputes, as an alternative, the person said.

Currently, the various Authorities for Advance Rulings take up issues from a technical standpoint and do not cover wider issues of law, hence the need for a broader framework. Besides, AAR decisions have not helped in containing litigation as most of these have been getting appealed both by taxpayers as well as the income tax department.

The Companies Act had in 2016 provided for a formal mediation process to settle disputes relating to the law but such a formulation is not present in the Income Tax Act.

The Direct Tax Task Force headed by former Central Board of Direct Taxes (CBDT) member Akhilesh Ranjan had suggested a mechanism to ascertain tax liability.

Industry Pitched for Such a Mechanism
“It is an established practice in some overseas tax jurisdictions to discuss and negotiate tax issues and disputes across the table between taxpayer and tax administration,with an earnest intent to resolve matters,” said Vikas Vasal, national leader, tax, Grant Thornton.

The Confederation of Indian Industry (CII) lobby group has pitched for a mediation mechanism in its pre-budget wish list. It has suggested that the government constitute a panel of experts comprising retired tax officials and experienced professionals to mediate.

“This process saves time and cost and helps in resolving many issues,” said Vasal of Grant Thornton. “The government would also have to provide necessary protection to the revenue or independent authority acting as the mediator from unnecessary questioning and its decisions being challenged in future, to make such a scheme successful.”

The government has sought to partially address this demand in the past through Advance Pricing Agreements (APAs) for transfer-pricing cases or by the Mutual Agreement Procedure (MAP) involving a settlement between the competent authorities of the respective governments, said Rakesh Nangia, chairman, Nangia Andersen Consulting. “Still, the need is felt for a more comprehensive tax-mediation mechanism, where taxpayers can have a dialogue for settlement of their tax disputes in all types of cases.”

GLOBAL TEMPLATE
The US Internal Revenue Service has a voluntary mediation programme known as Fast Track, which helps resolve disputes in 40-120 days, much faster than the traditional appeals process. An independent mediator facilitates the settlement discussion and helps reach an agreement on the disputed issues. A key feature of Fast Track is that the taxpayer retains the right to traditional appeal if the dispute remains unresolved through the mediator.

In the UK, Her Majesty’s Revenue and Customs has introduced alternative dispute resolutions by way of mediation, which involves a trained officer acting as a neutral third party, without forming a view on what is right or wrong, to settle tax disputes.