Tax Dispute Resolution Mechanisms in Developed and Developing Countries: An Analysis of Factors that Affect Dispute Mechanism Design and Functionality

Abstract

Tax dispute resolution mechanisms (TDRMs), which encompass the institutions and procedures established to resolve tax disputes, are a critical component of effective tax systems. In many countries TDRMs function in an efficient and transparent manner. However, in other countries TDRMs may be (or perceived to be) inefficient and biased, and may contribute to lower taxpayer compliance and tax revenue leakage. Considerable scholarship has been devoted to the discussion of substantive tax policy and to selected tax administration issues, such as audit and collection practices. Less attention has been devoted to the examination of domestic TDRMs, particularly in a developing country context. This paper contributes to the conceptual understanding of TDRMs by providing a descriptive framework that identifies, and describes the implications of, factors at both administrative and judicial appeal levels that affect the design and functionality of domestic TDRMs. Factors are divided into three primary categories: (1) tax dispute resolution institutions (e.g., administrative review boards and courts); (2) tax dispute resolution procedures; and (3) other factors (e.g., culture, capacity and corruption) that may influence the effectiveness of tax dispute resolution mechanisms. This descriptive analysis can contribute to the development of a normative framework for tax, as well as non-tax, dispute resolution mechanisms.

Keywords: tax, tax administration and procedure, tax appeals, tax controversy, tax dispute, tax court, tax legislation, tax policy, dispute resolution, alternative dispute resolution (ADR), online dispute resolution (ODR), corruption, tax amnesty, developing countries, emerging economies