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The Disputes Review Unit - its role in the dispute resolution process

Article considers IR's Disputes Review Unit and its role in the dispute resolution process. Adapted from an earlier 2007 article.

The following item is adapted and updated from an item published in the August 2007 edition of The Chartered Accountants Journal entitled "The Adjudication Unit and its role in the disputes resolution process".


The current tax dispute resolution process in New Zealand came into effect on 1 October 1996 and was set out in Part IVA of the Tax Administration Act 1994 ("TAA"). The process was intended to establish procedures to reduce the number of disputes by promoting full disclosure, encourage prompt and efficient resolution of tax disputes, promote early identification of the issues and improve the accuracy of decisions. As part of this process, the Disputes Review Unit (formerly known as the Adjudication Unit) was formed. Its role was to provide an impartial and objective review of unresolved disputes. It may be useful to explain the operation of the unit within the dispute resolution process and to make some observations regarding the preparation of dispute documents.

The dispute resolution process

Part IVA of the TAA sets out the procedure to be followed in the event of a tax dispute concerning an assessment or other disputable decision. Inland Revenue may not amend a taxpayer's assessment before the dispute resolution process is complete, except in limited circumstances (section 89N of the TAA). The dispute resolution process requires that formal documents be issued by both Inland Revenue and the taxpayer covering details of the adjustment in dispute, the relevant facts and evidence involved and the particular propositions of law relied on by each party.

Briefly, a dispute is initiated by the issuing of a Notice of Proposed Adjustment ("NOPA") by one party to another that states and explains the proposed adjustment as compared to the taxpayer's prior tax position. If the recipient disagrees with the NOPA, the recipient (who may be either the Commissioner or the taxpayer) must reject the proposed adjustment by issuing a Notice of Response ("NOR"). Where the Commissioner has issued a NOR in response to a taxpayer initiated NOPA, the taxpayer must reject the Commissioner's NOR in writing to ensure the dispute process continues (section 89H(3)).

Following the rejection of the proposed adjustment, a conference between the parties is usually scheduled (it is not a legislative requirement) to discuss the issues in more depth and potentially resolve the dispute or at least some of the issues. The taxpayer will be offered the opportunity to have a facilitated conference. At a facilitated conference a senior Inland Revenue staff member with no prior inolvement with the dispute will manage the conference between the parties. The facilitator does not make decisions about the issues between the parties. The facilitator will assist the parties reach their own resolution of some or all of the issues between them.

Pursuant to section 89M of the TAA, the Commissioner is required to issue a Disclosure Notice (except where the Commissioner has already issued a notice of disputable decision which includes or takes account of the adjustment(s) proposed in the NOPA) at the time or after either the Commissioner or the taxpayer issues the NOPA. Where both parties maintain their position they will be required to issue a Statement of Position ("SOP") setting out their final position on the issues.

In addition, if the initial adjustment has been proposed by the Commissioner, section 89M(8) of the TAA permits the Commissioner to provide additional information in response to any additional matters raised in the taxpayer's SOP. This will usually be called an Addendum to the Commissioner's Statement of Position. It is also noted that section 89M(13) provides that the parties may, at any time, agree to further information being added to either of their SOPs.

There are response periods set out in section 3 of the TAA. These generally require a response within two months of the formal stages during the dispute process discussed above (and four months in relation to a taxpayer wishing to propose an adjustment to any assessment it receives).

Agreement may be reached at any stage in the process, but, if the matter remains unresolved, the Commissioner's practice is that generally all matters will be referred to the Disputes Review Unit for consideration, unless s 89N of the TAA applies. It is noted here that the adjudication process is not legislated for and is an administrative part of the dispute resolution process.

In the event the Disputes Review Unit decides in favour of the taxpayer, Inland Revenue has no right of appeal against the Dispute Review Unit's decision. However, where the Disputes Review Unit has found in favour of Inland Revenue, a taxpayer has further rights in relation to the dispute. If they wish to continue the dispute they can do so by filing a challenge in the Taxation Review Authority or the High Court.

Generally s 89M of the TAA compels the issuing of a Disclosure Notice by Inland Revenue. Section 138G of the TAA provides that where Inland Revenue has issued a Disclosure Notice, both Inland Revenue and the taxpayer may raise during challenge, only the issues and propositions of law that are disclosed in the SOPs. The parties may raise new facts and evidence but not new issues or propositions of law.

The dispute resolution process is described in more detail (including tables of applicable timeframes) in:

The Disputes Review Unit

The Disputes Review Unit is part of the Office of the Chief Tax Counsel based in Wellington and part of Inland Revenue's National Office. The Disputes Review Unit is separate to the audit/investigation function and takes a fresh look at the dispute, providing an independent and impartial decision on the issues. The Disputes Review Unit continues to be responsible for adjudications and adjudication reports, but the new name reflects a slightly broader role and some added oversight and review functions relating to the tax disputes resolution process that are performed internally.

Each dispute is considered by a team of three people who all have professional legal and/or accounting qualifications and have experience in researching and analysing tax issues. The team members have differing levels of seniority and involvement in the consideration of the dispute. The final adjudication decision is made by a manager in the Disputes Review Unit. The adjudication team takes into account the NOPA, NOR, both parties' SOPs and all evidence sent through to the Disputes Review Unit at the time of the referral.

A comprehensive adjudication report is produced and provided to the parties. In addition to providing the adjudication decision and the reasons for that decision, the report also sets out the facts of the dispute, the issues that need to be addressed, the analysis of the legal issues involved, the application of that legal analysis to the facts of the dispute and the conclusions reached on each issue. In some instances, it may also be necessary to resolve disputed facts where the parties have not agreed. These reports can sometimes be lengthy, but it is considered important for them to encapsulate the relevant information in a single document and provide full analysis and reasoning, including the reasons why any particular arguments were not accepted. It is intended that such detail will assist both parties in any decisions as to their next steps in the dispute or future dealings on similar issues.

In addition, a letter is sent to both parties setting out a summary of the report. Any necessary assessments will be made as directed by a manager in the Disputes Review Unit.

The Disputes Review Unit does not perform a mediation or arbitration function. It considers the dispute based on the materials provided and does not conduct further investigation into the matter. Nor does it have any direct communication with either the Inland Revenue officers or the taxpayer involved in the dispute during the course of the adjudication. The Disputes Review Unit operates impartially and independently.

To maintain transparency and independence, the Senior Technical and Liaison Advisor (also part of the Office of the Chief Tax Counsel) handles any necessary correspondence or other communication between the adjudication team and either of the parties. (For more guidance on communication with the Disputes Review Unit, please see "Managing communications associated with a dispute" in Tax Information Bulletin Vol 15, No 12 (December 2003).

There is no charge for the review of the dispute by the Disputes Review Unit.

Performance standards and results

Once a dispute is referred to the Disputes Review Unit it is allocated to an adjudication team as soon as is practicable. As the Disputes Review Unit is demand driven, and the length and complexity of projects can vary significantly, it is not always possible to allocate disputes to an adjudication team immediately. However, generally disputes are allocated within about a week.

Once allocated, and a preliminary review of the dispute is completed, the adjudication team will provide both parties with an estimated delivery date for the completed adjudication report. While it is difficult to provide universal timeframes for a completed report, the Disputes Review Unit operates under the timeliness performance standards set out in the annual Performance Delivery and Measurement Document. The timeliness performance standard requires that 90% of adjudication reports are delivered within 3 months of allocation. The time required will depend on the complexity and number of issues and workflows, but the average delivery time for 2015 was 6.15 weeks. Many referrals are completed in 4 to 6 weeks.

The Disputes Review Unit completes approximately 55-80 adjudications every year. Given that there can be many issues involved in a dispute, decisions can be made fully or partly in favour of either party. Over the last few years, on average approximately 80% of the decisions made by the Disputes Review Unit were made predominately in favour of Inland Revenue's position and 20% predominantly in favour of the taxpayer's position.

Preparation of dispute documents

Since the dispute resolution process was introduced and there are some observations that can be made regarding the overall quality and content of the relevant dispute documents. While the overall quality of the dispute documents has improved over time, it is suggested that the following should be taken into account by the parties involved in the dispute resolution process:

  • the NOPA must identify the adjustment(s) proposed, provide a statement of the facts and the law in sufficient detail to inform the other party of the grounds for the proposed adjustment and also state how the law applies to the facts (section 89F of the TAA). In addition, where the taxpayer issues a NOPA, the taxpayer must include copies of the documents that it is aware of at the time the NOPA is issued that are significantly relevant to the issues (section 89F(3)(d) of the TAA);
  • the SOP must also give an outline of the facts, evidence and propositions of law relied upon and outline the issues each party considers will arise with sufficient detail to fairly inform the other party of its position and arguments (section 89M of the TAA);
  • ideally, the facts relevant to the dispute should be set out without incorporating any opinion or analysis;
  • it is advisable that, by SOP stage, the parties support all arguments with relevant authority (such as legislative references, case law and, where relevant, other legal resources);
  • all arguments and issues raised by the other party should be explicitly addressed, including any alternative arguments that have been raised;
  • the contractual and/or legal relationships existing in a transaction should be clearly identified and analysed where the conclusion on the issue may be affected by such relationships;
  • when calculation is necessary to reach the proposed adjustment figure(s), the calculation method/worksheet should be set out clearly. An explanation of the basis of that calculation is also helpful. Wherever possible, it is also helpful to set out gross (before tax) figures when detailing the proposed adjustments;
  • where a party receives a NOPA and wishes to propose an adjustment for the same period(s) in dispute but in relation to a different issue, that party cannot propose an adjustment in the NOR. The party would need to prepare a separate NOPA in respect of that issue. However, any such adjustments can be incorporated into a combined SOP from each party if the timing allows; and
  • the parties should be mindful of the response periods for the dispute resolution process as failure to reply/issue documents within the requisite time will result in deemed acceptance.

Contact information

If you wish to contact the Disputes Review Unit in relation to any aspect of the adjudication process, please contact:

Senior Technical and Liaison Advisor
Office of the Chief Tax Counsel
PO Box 2198
Wellington 6140
Phone: 04 890 6143
Fax: 04 978 1630
Email: [email protected]

Inland Revenue staff formally referring a file to the Disputes Review Unit for consideration should send it to the following street address:

Senior Technical and Liaison Advisor
Office of the Chief Tax Counsel
Level 4
Asteron Centre
55 Featherston Street
Wellington 6011

For more information about the Office of the Chief Tax Counsel