Meaning
A dispute resolution mechanism is established to resolve technical tax disagreements between parties without resorting to court litigation. The tax referee protocol designates an independent tax professional, usually a senior tax partner at a national accounting firm, to make a binding decision on the disputed tax position. This process ensures a rapid and expert resolution to complex tax issues that arise during a transaction.
Expert Selection
The contracting parties agree on the identity or the selection process of the neutral referee before any dispute arises. If they cannot agree on a specific individual, the agreement often directs a professional body to appoint a referee with appropriate experience. This pre-agreed selection process prevents deadlock when a dispute starts and ensures the referee has the necessary technical knowledge.
The referee must be free of conflicts of interest with either party, and their firm cannot have provided services to either side during the preceding five years.
Decision Process
The referee operates under a strict schedule to review submissions from both parties and deliver a determination. Each side submits their arguments and supporting documents within a specified number of days, and the referee may request additional information. This structured exchange allows for a focused analysis of the technical tax merits of each position.
Final Resolution
The decision of the tax referee is binding upon the parties and cannot be appealed except in cases of fraud or clear procedural error. This finality allows the parties to proceed with the transaction or file tax returns with confidence that the dispute is settled. The costs of the referee are usually shared equally or awarded to the prevailing party.
