In my previous article, I shared tips on how to prepare for a tax audit and how best to manage the audit process. Today, I would like to talk about the tax dispute resolution process.
Avoiding a dispute is the first step in tax dispute resolution; therefore, any stage before an assessment is raised is an opportunity to deal with a potential dispute, for example, by way of a voluntary disclosure.
By the time you receive an assessment, you should know beforehand whether you agree to it as there would have been events leading up to it. If you are in agreement, it is advisable to pay the tax immediately to avoid the accumulation of interest. Whilst payment plans may be negotiated with URA, this does stop the interest from accruing on the unpaid amount.
However, there are times when you will disagree with URA in principle or otherwise. What should you do when you are aggrieved by an assessment or not satisfied with a decision taken by the URA? The tax law provides for an objection and appeals framework for dealing with URA disputes after an assessment has been raised.
If you disagree with the assessment, you should object to URA within 45 days of receipt of the notice of assessment. A notice of objection is submitted via the URA online portal along with supporting evidence which includes an objection letter that contains the detailed grounds for the objection. Do not delay. I have encountered situations where taxpayers initiate discussions with the URA after an assessment has been issued hoping for a change of heart only for the 45 days to elapse. When you miss the deadline, you lose your rights.
In the objection letter, address all the disputable points that have been raised by the URA in their management letter as items not objected to will be treated as agreed to. The objection letter is of high evidential value if the matter proceeds to the Tax Appeals Tribunal (TAT) for review as the TAT will not hear issues that were not raised at the objection stage.
The URA’s Objections and Appeals team is responsible for independently reviewing the objection along with all supporting documentation. The tax law allows URA 90 calendar days within which to communicate an “objection decision”. If you do not receive the objection decision within 90 days, you are entitled to treat the objection as allowed. Often times, the URA will request for additional information from you to support the objection. The request for additional time resets the clock from the time when you submit the additional information.
A URA objection decision may be given by; allowing your objection in full, allowing it in part or refusing the objection in its entirety.
If you are still aggrieved with the objection decision, you may lodge an appeal with the TAT, the court of first instance for all tax related matters. This must be done within 30 calendar days from the date of receipt of the objection decision. In special circumstances, a taxpayer can apply to the TAT for an extension of time within which to file an application for review of a tax decision. The application for extension must be made within six months of the tax decision. However, it should be noted that the TAT is reluctant to grant such applications unless good cause is shown. For example, in a 2020 decision, the Tribunal allowed an application on the grounds of the lockdown due to the COVID-19 pandemic.
A taxpayer who appeals to the TAT is required to pay 30% of the tax in dispute or that part of tax assessed not in dispute, whichever is greater to the URA before lodging the appeal. However, a recent Constitutional Court decision held that the mandatory payment denied taxpayers the right to a fair hearing and should not be enforced in cases arising out of principle. For example, a person challenging URA’s interpretation of a legal provision should not be required to pay the 30% deposit. This case is on appeal before the Supreme Court.
I typically encourage taxpayers to explore possibilities for out-of-court settlement even after a matter has been referred to the TAT. This is because litigation can be lengthy, costly and ends up with a winner and a loser. On the other hand, a settlement often leads to a win-win outcome although this requires flexibility and compromise on both sides. I’ve found that it is always better to bend a little than to break.
Crystal Kabajwara is an Associate Director with PwC Uganda’s tax practice.