Dispute prevention and resolution are essential to help preserve trust in the tax systems. This chapter explores the strategies put in place by tax administrations to resolve and prevent disputes fairly and efficiently.
Tax Administration 2024
Comparative Information on OECD and other Advanced and Emerging Economies
Tax Administration
Abstract
Taxpayer rights and obligations are frequently set out in law or taxpayer charters (see also Chapter 9, Table 9.4.). Underpinning these rights and obligations is effective access to processes that allow taxpayers to challenge assessments and decisions. This safeguards taxpayer rights and ensures that appropriate checks and balances exist on the exercising of tax powers by administrations. At the same time, tax administrations and taxpayers should also strive to work together to prevent disputes from arising in the first place, thus reducing burdens and uncertainty for both parties.
This chapter examines the dispute resolution and review strategies in the jurisdictions covered by this report, as well as their performance in this area. This is an important function of tax administrations, and on average around 5% of total staff numbers are dedicated to the management of disputes, including litigation, dispute resolution, appeals, objections and rulings (see Chapter 10).
All 58 jurisdictions covered in this report provide taxpayers with the right to challenge assessments. Almost all administrations report having an internal review mechanism in place, and a large majority of administrations provide taxpayers with the option to seek an independent review by an external body, which can help improve legal certainty for taxpayers while avoiding potentially lengthy and costly legal proceedings. For those administrations that offer both review mechanisms, approximately 80% require taxpayers to seek an internal review before their case can be reviewed by an external body. (See Table 8.1.)
Percentage of administrations
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Tables A.89 Dispute resolution: Review mechanisms, and A.90 Dispute resolution: Review procedure, https://data.rafit.org/regular.aspx?key=74180895 (accessed on 10 September 2024).
Performance in dispute resolution
While tax administrations cannot generally control the timing of judicial processes, many of them are working on improving dispute resolution processes to make them quicker. These might include mediation or other non-judicial routes. The examples included in Box 8.1. illustrate how administrations are improving their case management systems.
Brazil – Classification and labelling of processes and allegations
Brazil has taken measures to reduce the backlog of cases and average time for judgements to be taken. The tax administrative litigation area of the Federal Revenue Service is responsible for managing activities related to trials, including management of the national collection of cases and their selection and distribution to judges. Included in the work plan to increase productivity without increasing the number of judges is the initiative: “Classification and Labelling of Processes and Allegations”.
This initiative encompassed several actions, including:
The preparation of tables of possible allegations to be reported by the taxpayer in their appeal;
The identification of the allegations contained in the appeal;
The selection and distribution of case groups to judges based on the allegations presented.
Furthermore, there has been progress in terms of:
Strategic decision making;
The creation of more homogeneous process groupings to optimise judgments;
The rapid identification of groups of processes in special situations, for example, when publishing a judicial decision with repercussions for administrative judgments;
The formation of a consistent database for machine learning to use artificial intelligence algorithms;
The classification of processes has also made it possible to do work focused on identifying the causes of exonerations in order to support projects to improve assessments and make procedural changes in judgment activities;
The initiatives proved to be effective, with a 94% increase in resolved cases for 2023 compared to 2022.
Saudi Arabia – Smarter case management using artificial intelligence
The Al-Njaz project provides a smart intelligence solution for legal and tax-related processes regarding the core activities of the Saudi General Secretariat of Tax Committees (GSTC), from case registry up to judicial decisions. It is aimed at leveraging various artificial intelligence techniques for improved decision-making, to prevent discrepancies, ensure compliance with regulations, and analyse historical cases.
Twenty business challenges were identified, that are addressed through use cases grouped into four themes:
Data Arrangement: This relies on classification techniques to detect duplicate cases, identify similarities and perform consistency checks on the cases. It aims to improve case processing and avoid discrepancies in the rulings of similar cases.
Compliance Analysis: Focuses on GSTC standards in terms of case requirements. It relies on advanced data science techniques to run verification checks on a document’s structure and its related content.
Purpose of Decision Intelligence: This supports an analyst’s decisions throughout the case analysis and decision-making process by using advanced data science techniques such as regression models. Tasks such as decision drafting, quality assurance and quality control (QA/QC) on mandatory data fields are included in this theme.
AI Analytics: This involves leveraging determinist calculation capabilities to better understand trends and insights to ensure coherence and alignment across various historic decisions and enable future forecasts.
Sources: Brazil (2024) and Saudi Arabia (2024).
Tables 8.2. and 8.3. compare the change between 2018 and 2022 in the number of review cases initiated and on hand at fiscal year-end, for both internal and external reviews. The reductions in the number of cases initiated, see Table 8.2., that were reported by the majority of administrations during the COVID-19 pandemic cannot be observed anymore. Between 2021 and 2022, a slight majority of administrations reporting an increase in the number of cases initiated.
In relation to the number of cases on hand at fiscal year-end, see Table 8.3., the majority of administrations reported decreasing numbers between 2021 and 2022, both for cases under internal and external review. As regards tax cases external review, this continues a trend that can be observed for the last three years.
Percentage of administrations that reported an increase or decrease in the number of cases initiated
Sources: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Tables A.91 Dispute resolution: Number of cases - Tax cases under internal procedures, and A.92 Dispute resolution: Number of cases - Tax cases under independent review by external bodies, https://data.rafit.org/regular.aspx?key=74180895 (accessed on 10 September 2024).
Percentage of administrations that reported an increase or decrease in the number of cases on hand
Sources: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Tables A.91 Dispute resolution: Number of cases - Tax cases under internal procedures, and A.92 Dispute resolution: Number of cases - Tax cases under independent review by external bodies, https://data.rafit.org/regular.aspx?key=74180895 (accessed on 10 September 2024).
Figure 8.1. and Figure 8.2. take a more detailed look at the jurisdiction level data and show the change between 2021 and 2022 in the number of review cases on hand at fiscal year-end, for both internal and external reviews. What is interesting to note are the significant increases in the number of internal review cases reported by a few jurisdictions.
At the same time, it should be pointed out that the volume of cases per jurisdiction varies significantly and where the number of cases is very low there can be significant fluctuations between years. This becomes more evident when looking at Figure 8.3., which highlights the wide differences between jurisdictions in the use of internal review procedures. Looking at Table 8.4., which shows the average number of internal review cases initiated over the period 2018 to 2022, it can be observed that the average has been stable around 7.5 internal review cases initiated per 1 000 active PIT and CIT taxpayers (with a slightly higher number in 2021).
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Table A.91 Dispute resolution: Number of cases - Tax cases under internal procedures, https://data.rafit.org/regular.aspx?key=74180895 (accessed on 10 September 2024).
Sources: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Table A.92 Dispute resolution: Number of cases - Tax cases under independent review by external bodies, https://data.rafit.org/regular.aspx?key=74180895 (accessed on 10 September 2024).
Note: For Saudi Arabia, the “No. of internal cases initiated during the FY per 1 000 active taxpayers” was put in relation to active VAT taxpayers.
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Table D.49 Administrative review cases and litigation, https://data.rafit.org/regular.aspx?key=74180903 (accessed on 10 September 2024).
Note: The table shows the averages for those jurisdictions that were able to provide the information for the years 2018 to 2022. The number of jurisdictions for which data was available is shown in parentheses.
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Table D.49 Administrative review cases and litigation, https://data.rafit.org/regular.aspx?key=74180903 (accessed on 10 September 2024).
Different interpretations of tax law by taxpayers and the tax administration are a normal part of tax administration, and it is not uncommon for these differences to become subject to litigation, once the internal and external review procedures have been exhausted. Whilst tax administrations report that most disputes are resolved without the need for litigation, Figure 8.4. reports the performance of administrations for cases decided upon by the courts. It shows significant differences in the success rate of administrations, although for some jurisdictions the number of cases decided is very low, meaning results can fluctuate significantly between years.
Note: Cases resolved in favour of the administration means those cases where the administration has been successful in more than 50% of the issues contested in each case. For Argentina see the note in Table A.93.
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Table D.49 Administrative review cases and litigation, https://data.rafit.org/regular.aspx?key=74180903 (accessed on 10 September 2024).
Resolving international tax disputes
Cross-border business and international labour mobility are increasingly common. This inevitably leads to disputes over which jurisdictions have the right to tax certain types of income. Tax treaties between jurisdictions, also known as double taxation agreements, aim to remove double taxation by setting out mutually agreed rules on the allocation of taxing rights. To address situations where parties involved disagree on the application or interpretation of those rules, many tax treaties include a provision for a Mutual Agreement Procedure (“MAP”) to resolve such disputes, separate from the standard legal remedies available under domestic law.
MAP is crucial for the correct application and interpretation of tax treaties. It ensures that taxpayers who are entitled to treaty benefits are not subjected to taxation that is not in line with the treaty’s terms. It is therefore important to ensure that access to the MAP is readily available and that MAP cases are resolved and implemented promptly and within a reasonable timeframe.
Following the publication of the report Making Dispute Resolution Mechanisms More Effective, Action 14 - 2015 Final Report (OECD, 2015[1]), which contains a BEPS minimum standard on the resolution of treaty-related disputes, OECD/G20 BEPS Inclusive Framework members agreed to:
a peer review process to evaluate the implementation of this standard;
to publish the MAP profile for each jurisdiction; and
to report and publish MAP statistics under the MAP Statistics Reporting Framework.
The results of this work, including the MAP profiles and statistics, can be found on the OECD website on Dispute resolution in cross-border taxation (OECD, 2024[2]).
In addition to this, the OECD with the Forum on Tax Administration (FTA), has developed tools to assist jurisdictions and taxpayers in navigating the MAP process:
the Manual on Effective Mutual Agreement Procedures (OECD, 2007[3]); and
the Manual on the Handling of Multilateral Mutual Agreement Procedures and Advance Pricing Arrangements: Enhancing Tax Certainty (OECD, 2023[4]).
To deal with MAP cases, tax administrations employ specialised experts and the ISORA data shows that the administrations covered in this publication have on average 15 staff working on MAP. Looking at the jurisdiction level data, there is a significant difference between administrations ranging from a few staff in some jurisdictions to up to more than 100 staff in the United States. (See Table B.23.)
As disputes can be resource intensive processes, preventing them is the most effective strategy, and a key element in the dispute prevention framework is the provision of guidance and advice to taxpayers. Tax administrations often do this as part of their wider service strategy. This can include putting information and interactive tools on their website, publishing guidelines and taxpayer information briefs, and carrying out educational and business support initiatives. In addition, many administrations offer specific dispute prevention mechanisms and some of those approaches are described in this section.
Rulings
As part of tax administrations’ commitment to give taxpayers certainty of treatment, it is now common practice for administrations to set out how they will interpret the laws they administer, and how they will interpret the tax law in particular situations. This takes place through rulings:
A public ruling is a published statement of how an administration will interpret provisions of the tax law in particular situations. They are generally published to clarify application of the law, especially where a large number of taxpayers may be impacted by particular provisions and/or where a provision has caused confusion or uncertainty. Typically, a public ruling is binding on the tax administration if the ruling applies to the taxpayer and the taxpayer relies upon it.
A private ruling relates to a specific request from a taxpayer (or their tax representative) seeking greater certainty as to how the law would be applied by the tax administration in relation to a proposed or completed transaction(s). The objective of private rulings is to provide additional support and certainty to taxpayers on the tax consequences of more complex transactions.
Percentage of administrations
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Table B.48 Rulings on the application of tax laws, https://data.rafit.org/regular.aspx?key=74180919 (accessed on 10 September 2024).
Around 85% of administrations reported that they provide public rulings. Interestingly, 10% of those indicated that the public rulings were not binding upon them. A similar number of administrations reported issuing private taxpayer rulings, and again in around 10% of administrations the private rulings are not binding on the tax administration. Eighty percent of tax administrations providing private rulings reported the existence of time limits for the making of rulings, and half of the administrations noted that private rulings are subject to fees. (See Table 8.5.)
India have introduced Boards of Advance Rulings (BARs) to provide tax certainty to non-resident investors. These Boards use email and video conferences to conduct their hearings and provide advance ruling to non-residents on the tax obligations of potential investments.
The receipt of applications, processing of applications, and hearings are all dealt with electronically, ensuring transparency and convenience for the applicant. The BAR has the full powers of India’s civil court, and it is possible to appeal its rulings before the Honourable High Court.
Source: India (2024).
Advanced pricing arrangements
Bilateral and Multilateral Advance Pricing Arrangements (“APAs”) are binding arrangements between two or more tax administrations and the taxpayers in relation to a specific issue for a prescribed period. In a growing number of cases, these collaborative APAs have successfully contributed to providing advance tax certainty to both taxpayers and tax administrations, ensuring predictability in the tax treatment of international transactions and reducing potential tax disputes.
To support administrations and taxpayers, the FTA MAP Forum has developed the Bilateral Advance Pricing Arrangement Manual (OECD, 2022[5]) which is intended as a guide for streamlining the Bilateral APA process to facilitate a cooperative and collaborative process. In addition, the Manual on the Handling of Multilateral Mutual Agreement Procedures and Advance Pricing Arrangements: Enhancing Tax Certainty (OECD, 2023[4]) offers guidance to tax administrations and taxpayers on Multilateral APAs from both legal and procedural perspectives.
Close to 90% of administrations covered in this publication reported that they enter into APAs, and to support this process they have on average 17 staff specialised in APAs. However, there is a significant difference at jurisdiction level. (See Table B.23.)
To streamline tax compliance and enhance information security in the process of applying for Advance Pricing Agreements (APAs), the Internal Revenue Service (SII) has introduced a new online system.
This secure platform simplifies the submission and renewal of APAs requests and provides various additional tools. These include the option for pre-filing meetings, access to the regulations on APAs and Transfer Pricing, statistical insights into request processing and subscribed agreements, a Frequently Asked Question section, video resources, and a comprehensive step-by-step guide for uploading files within the system.
To further enhance user support, an email inbox has been set up to address any queries related to this topic.
Access to this digital platform is available on the official website. This user-friendly interface aims to ensure transparency and efficiency throughout the process.
This system has not only simplified tax procedures but also fostered a collaborative and transparent environment between taxpayers and the competent authority.
Source: Chile (2024).
Co-operative compliance programmes
Over the last few years, there has been an increasing focus on the use of co-operative arrangements to manage compliance and enhance tax certainty. These programmes often involve a more transparent relationship between tax administrations and taxpayers, and can involve more proactive approaches to resolving material tax risks. The concept of co‑operative compliance has been the subject of several OECD reports, most recently Co‑operative Tax Compliance: Building Better Tax Control Frameworks (OECD, 2016[6]).
As the operation of a co‑operative compliance programme is resource intensive due to the high level of engagement between tax administration officials and taxpayers, traditionally those programmes were reserved for large companies, and close to 75% of administrations reported having such programmes for large taxpayers. However, technological advances in risk assessment processes have led to a number of administrations reporting the application of this concept to other taxpayer groups, such as High Net Wealth Individual (HNWI) taxpayers (see Table 8.6.).
Percentage of administrations that have such approaches
Source: CIAT, IOTA, IMF, OECD, International Survey on Revenue Administration, Table A.107 Cooperative compliance approaches, https://data.rafit.org/regular.aspx?key=74180897 (accessed on 14 June 2024).
International Compliance Assurance Programme
The International Compliance Assurance Programme (ICAP) is a voluntary programme for a multilateral co-operative risk assessment and assurance process. It is designed to provide multinational enterprise groups (MNE groups) with increased tax certainty with respect to certain of their activities and transactions as long as they are willing to engage actively, openly and in a fully transparent manner. ICAP does not provide an MNE group with the legal certainty that may be achieved, for example, through an APA. However, it does give assurance when tax administrations participating in an MNE group’s risk assessment consider covered risks to be low risk.1 (OECD, 2021[7])
Joint audits
Another tool that can assist in preventing disputes is a joint audit where officials from two or more administrations join to form a single audit team which will examine issues or transactions of taxpayer(s) with cross-border business activities and in which the jurisdictions have a common or complementary interest. By collaborating it may be possible for the participating tax administrations to detect and address differences or potential disputes at an early stage. (OECD, 2019[8])
References
[2] OECD (2024), Dispute resolution in cross-border taxation, https://www.oecd.org/en/topics/dispute-resolution-in-cross-border-taxation.html (accessed on 10 September 2024).
[4] OECD (2023), Manual on the Handling of Multilateral Mutual Agreement Procedures and Advance Pricing Arrangements: Enhancing Tax Certainty, OECD Forum on Tax Administration, OECD Publishing, Paris, https://doi.org/10.1787/f0cad7f3-en.
[5] OECD (2022), Bilateral Advance Pricing Arrangement Manual, OECD Forum on Tax Administration, OECD Publishing, Paris, https://doi.org/10.1787/4aa570e1-en.
[7] OECD (2021), International Compliance Assurance Programme: Handbook for tax administrations and MNE, OECD Publishing, Paris, https://doi.org/10.1787/a44d51e2-en.
[8] OECD (2019), Joint Audit 2019 – Enhancing Tax Co-operation and Improving Tax Certainty: Forum on Tax Administration, OECD Publishing, Paris, https://doi.org/10.1787/17bfa30d-en.
[6] OECD (2016), Co-operative Tax Compliance: Building Better Tax Control Frameworks, OECD Publishing, Paris, https://doi.org/10.1787/9789264253384-en.
[1] OECD (2015), Making Dispute Resolution Mechanisms More Effective, Action 14 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/9789264241633-en.
[3] OECD (2007), Manual on Effective Mutual Agreement Procedures (MEMAP), OECD, Paris, https://doi.org/10.1787/2bb3ab55-en.
← 1. See https://www.oecd.org/en/about/programmes/icap.html for more information (accessed on 10 September 2024).