A New Tax Dispute Settlement Law

A new law was issued for the settlement of tax disputes (the “Law”).[1] It replaces two laws which used to regulate cases that are filed before court concerning disputes arising between the tax authority and taxpayers.[2] While similar to previous regulation in some of its provisions, the Law carries some prominent distinctions such as: granting greater power to the dispute settlement committee than that which used to be given to reconciliation committees under previous laws; shortening the time period for issuing a recommendation that is mandatory for the governmental body and optional to the taxpayer; as well as shortening the time period during which the taxpayer may elect to accept or refuse said recommendation. It is important to note that according to Article 8 of it, the Law is to be applied for a year starting from the day following its issuance i.e. until 27 September 2017.

Background

Legislative instruments which regulate tax typically stipulate different means for dealing with tax related disputes that arise between the administration and taxpayers. These methods are aimed at creating dispute resolution mechanisms that are more specialized, and time and cost efficient in comparison to the conventional court proceedings route which is fraught with case backlog. For instance, as we have highlighted in our September 2016 issue, the Value Added Tax (VAT) law issued this September provides for internal mechanisms that are designed to reach quick resolution without need to get into lengthy litigation proceedings. In addition to internal dispute resolution mechanisms that are contained in certain legislative texts whether in relation to taxation; the State also sometimes lays out parallel means to resolve disputes in hopes of facilitating tax dispute resolution through settlement/reconciliation. In light of the above, a Tax Reconciliation Tax was approved in 1997, which was followed by a number of tax related legislative instruments, leading up to Law No. 163 of 2013 for tax reconciliation. The new Law is a step towards the development of a parallel tax dispute resolution mechanism. It provides the terms and requirements regulating a reconciliation procedure which ends with the issuance of a recommendation that is mandatory to the government but optional to the private sector party, as the latter may decide to refuse the recommendation and continue with the regular route of court litigation.

The Law in Some Detail

Although some of the main concepts provided under the Tax Reconciliation Law of 1997 are similar to those enacted under the present Law, there are important distinctions between the two laws. We go into some of these differences in detail below. Scope of application Law No. 159 of 1997 provided for a reconciliation procedure that was applicable to all lawsuits filed with the courts up to the date of the application of the law i.e. December 1997. This meant that lawsuits filed following that date were not eligible for reconciliation. Then came Law No. 163 of 2013 which extended that period to December 2013. In contrast to those two previous laws, the newly enacted Law (79 of 2016) makes settlement available for lawsuits in existence at the time of the application of the Law, and those which come up for a year to follow. This is an important caveat provided under Article 8 which stipulates that the Law is applicable for a period of one year from the date of its application i.e. until September 2017. Shifting the initiative to taxpayers Previous reconciliation laws allowed the tax authority alone to initiate this proceeding by filing a request before court for a stay of litigation until the reconciliation route is exhausted. The new Law places the initiative with the taxpayer who can now present a request for reconciliation to the tax authority, which in turn refers the matter to the relevant dispute resolution committee to determine whether there is serious ground. The committee then returns the matter to the tax authority who then notifies the court or the relevant dispute resolution body. This procedure leads to a mandatory suspension of litigation until the relevant committee looks into the dispute. It seems here that the Law has missed an opportunity to provide for a much shorter and direct procedure. The current mechanism necessitates that the tax authority presents a reconciliation request to the committee and then again refer the decision of the committee to court, which mandates the latter to stay its proceedings. It is unclear why the Law did not just make it possible for the taxpayer to directly submit a request before the reconciliation committee, and for the committee to then be able to directly submit its decision to court. That would have saved some time and unnecessary steps. Shorter period for a stay of court proceedings The former law provided for a stay period of 9 months for cases that were before court or before a dispute resolution committee, starting from the date of submitting a request and automatically renewable for similar periods if the original 9 month-period lapses without reaching resolution and the tax authority does not notify the court so that litigation proceedings may resume. If, however the authority had notified the court under the former law that reconciliation procedures have not resulted in a resolve of the dispute, or if the second period for stay of proceedings lapsed without reaching said resolution, the case was returned to the state it was at before the stay of proceedings. In contrast, the new Law provides for a stay period of three months (as opposed to 9), renewable for one similar period in the event that the original stay period lapses with no result, without the need for the committee to have made a decision stating that the dispute could not be resolved. Greater power to the committee? The former 1997 law provided for a mechanism which entailed that the committee reaches an agreement with the taxpayer. In contrast the drafting of the new Law perceives a relationship between the taxpayer and the authority that is somewhat different, a relationship which is closer to settlement. This could explain the reason behind replacing the term “reconciliation” with settlement of disputes. The Law provides that the committee for the settlement of disputes issues its recommendation regarding the request to end the dispute upon reviewing all documentation that is provided by both parties in light of the established legal principles. It also provides that this recommendation is presented by the committee to the taxpayer within 5 days from the date that the recommendation is issued. In the event that the taxpayer accepts the recommendation in writing within the following 5 days, this resolution then becomes automatically enforceable once approved by the Minister of Finance. This automatically ends the outstanding litigation. In the event that the taxpayer refuses the recommendation, or provides no response within the given timeframe, the tax authority then notifies the court or relevant committee, and that leads to the resumption of litigation procedures.

Conclusion

The new Law seems to be a continuation of an effort to build a legislative foundation for taxation policy. It is a step which follows the enactment of the VAT law in September 2016. While the Law provides some clarity in terms of the operation of tax dispute committees - which the government hopes results in the collection of around 15 billion Egyptian pounds (according to statements by the Deputy Minister of Finance) – the Law could have, nevertheless, made settlement procedures shorter and quicker if it had allowed direct interaction between the taxpayer and the relevant dispute committee. This is especially important given that the main logic and purpose behind enacting this Law was to simplify settlement procedures. In addition, the mechanism which the government intends to apply following the end of the period of application of this Law in September 2017 remains unclear. [1] Law No. 79/2016 on the Settlement of Tax Disputes, Official Gazette, Issue No. 38 (bis) (c), 26 September 2016. [2] Law No. 159/1997 on Reconciliation in Tax Disputes, Official Gazette, Issue No. 49 (bis), 9 December 1997. Law No. 163 of 2013 on Reconciliation in Tax Disputes, Official Gazette, Issue 49 (bis) (b), 11 December 2013.