Tax Litigation

Our tax practice

Arnold Bloch Leibler’s tax team is sought after by clients to advise on complex tax audits, disputes and, when necessary, litigation. Our management of all aspects of tax controversy sits with and complements our offering of tailored tax advice on commercial structures and transactions.

Arnold Bloch Leibler is the tax controversy adviser of choice in end-to-end management of tax disputes and litigation arising from ATO compliance activities and audits. We represent clients regarding reviews (including Top 100, Top 1000), tax audits, voluntary disclosures and disputing assessments issued by the ATO both on internal review and in Part IVC proceedings. Our reliable and experienced team advise on current or forthcoming disputes, and represent clients during audits, alternative dispute resolution, administrative review and in judicial and tribunal hearings at first-instance and on appeal.

Our tax lawyers have formidable tax knowledge and an unrivalled reputation for vigorously asserting and defending our clients’ interests and expertly dealing and negotiating with the highest ranking officials from the ATO.

Key features of tax litigation

The tax dispute cycle

Tax litigation is often the final opportunity for a taxpayer to contest a tax assessment. It is the final stage of a protracted tax dispute beginning with a review, maturing to audit and resulting in amended assessments. However, tax litigation can also involve interlocutory hearings within the course of an audit, including in relation to the extent of the Commissioner’s power of administration, access powers and recovery powers.

Read more about the 6 stages of a tax dispute.

Decisions which may be litigated

The only mechanism to contest an objection decision, and therefore a substantive tax liability, is through a review or appeal under Part IVC of the Taxation Administration Act 1953 (Cth).

However, there are a number of other decisions which may be reviewable under the Administrative Appeals (Judicial Review) Act 1977 (Cth) or under section 39B of the Judiciary Act 1903 (Cth). Such decisions include those relating to the Commissioner’s information gathering powers, the application or remission of particular penalties and interest, and the Commissioner’s debt recovery powers.

The burden of proof and jurisdiction

In proceedings under Part IVC of the Taxation Administration Act 1953 (Cth), the onus is on the taxpayer to prove that an assessment is excessive. The taxpayer must demonstrate both that the assessment is wrong and what correction should be made in order to make it right.

If the taxpayer is dissatisfied with an objection decision, they can choose to either apply to the Administrative Appeals Tribunal (AAT) for review of the decision or appeal directly to the Federal Court. The choice of jurisdiction is final and this will dictate the necessity to follow the strict rules of evidence and the powers of the decision maker.

On review, the AAT is empowered to remake a decision on the merits, is not bound to follow the rules of evidence, and is generally the forum of choice for factual disputes.

By contrast, appeals to the Federal Court are more formal, bound by the strict rules of evidence and can only raise questions of law.

Evidence

The success of a taxpayer’s appeal is heavily reliant on the evidence that the taxpayer can prepare. The taxpayer must be able to produce reliable probative evidence to support assertions of fact. If available, objective, contemporaneous documentary evidence will always be best. However, consideration may also need to be given as to whether lay evidence is appropriate and whether experts should be briefed, and expert evidence produced.

While it is always best to ascertain the facts and gather the evidence early in the disputes cycle, it is not uncommon for further evidence gathering and preparation to occur during the litigation stage of a dispute.

Legal professional privilege

Legal professional privilege is a common law right which protects the taxpayer from being compelled to provide information or documents to the Commissioner. It is one of the few options for resisting the Commissioner’s wide information gathering powers.

However, managing legal professional privilege claims becomes particularly important in the context of tax litigation. As explained above, the onus is on the taxpayer to demonstrate that the relevant tax assessment was excessive and what that assessment should have been. This requires one to carefully consider the available evidence and whether it may be appropriate to waive privilege in certain circumstances.

Read more about legal professional privilege.

Liability

Tax litigation is the final opportunity for the taxpayer to contest an assessment, and their final opportunity to contest the relevant tax liability. However, the tax liability crystallises when the Commissioner makes an assessment. This means that, although the debt may still be disputed, the taxpayer remains liable to pay the disputed tax debt.

Though all or part of the tax debt generally remains outstanding throughout a dispute, the debt can be managed by engaging with the ATO. Where appropriate, the ATO may be prepared to defer recovery action and remit interest, reducing the taxpayer’s exposure to interest and deferring payment while the dispute remains on foot.

Where the liability is not effectively managed, the taxpayer and key personnel may be at the mercy of the Commissioner’s wide ranging recovery powers under both the tax legislation and the corporate insolvency regime. Not only can the Commissioner recover against the taxpayer, but in some circumstances the Commissioner can pursue key management personnel.

Read more about tax in insolvency & restructuring.

The tax system

It is important to recognise that tax litigation occurs in the broader context of the tax system. Not only does it determine the correct assessment for the taxpayer, but it determines the interpretation of the tax legislation and may have precedential value.

As administrator of the tax system, the Commissioner has broader strategic considerations than an individual assessment or taxpayer. These considerations include avoiding an unfavourable precedent, confirming his interpretation of the tax law, or setting an example for a particular industry.

Recognising this context is important as the Commissioner may have more to gain, or more to risk, from tax litigation than the revenue collected from a particular tax assessment. This will shape his approach to risk, settlement, and his broader litigation strategy.

Our approach

Most tax disputes are resolved by negotiated settlement, but litigation may sometimes be necessary. Our approach to tax litigation is simple: assess and explain the likely outcome, risks and rewards and don’t get into a fight unless you know how to get out of it. We are also able to leverage the experience of sector experts within our firm’s litigation practice where appropriate. No litigation strategy is adequate or complete without considered settlement options that could, if deployed at the right time, build a bridge between the parties.

Our service approach, which is based on small teams and a high level of partner contact and involvement in matters, ensures we remain nimble and efficient. In litigation we work with counsel cooperatively, efficiently and without silos. It is your case and your real-time engagement and communication with counsel is critical to the process.