By Dr. Kariuki Muigua, PhD (Leading Environmental Law Scholar, Policy Advisor, Natural Resources Lawyer and Dispute Resolution Expert from Kenya), Winner of Kenya’s ADR Practitioner of the Year 2021, ADR Publication of the Year 2021 and CIArb (Kenya) Lifetime Achievement Award 2021*
The Cabinet Secretary for the National Treasury and Planning on 17th June 2020, pursuant to section 112 of Tax Procedures Act, 2015 (the Act), enacted The Tax Procedures (Settlement of Tax Disputes Out of Court or Tribunal) Regulations, 2020 (which were gazetted on 9th July 2020) to make provision for Alternative Dispute Resolution after tax appeal has been lodged either with the Tax Appeals Tribunal (TAT) or Court of Law whether High Court or Court of Appeal. The regulations apply where a tax dispute has been permitted to be settled out of court or tribunal in accordance with section 55 of the Act and section 28 of the Tax Appeals Tribunal providing for out of Court and out of Tribunal settlement.
The regulations provide that a party to a tax dispute may apply to the court or tribunal to settle the tax dispute out of court or tribunal as the case may be. However, the parties to a tax dispute have to agree voluntarily to settle the dispute out of court or tribunal and the party seeking to settle the dispute out of court or tribunal has to obtain the consent of the other party as proof before applying to the court or tribunal. In any case, the parties must be committed to the settlement process. Even where parties agree, there are tax disputes that cannot be settled out of court or tribunal. These include disputes whose settlement would be contrary to the Constitution, the tax law or any other written law; tax dispute involving the interpretation of the law or where there is evidence that the taxpayer has committed fraud in relation to tax.
Further, if the parties to the tax dispute have previously failed to settle the dispute out of court or tribunal, the matter cannot be referred to out of court settlement again. In essence, this provision appears to limit the discretion of the Court or Tribunal to allow referral of disputes that had previously failed to reach settlement under ADR process. This is key given that the parties to a tax dispute are required to conclude the settlement process within ninety days from the date the court or tribunal grants permission to settle the dispute out of court or tribunal. This is the same time stipulated by the Act. Thus, if the parties do not reach a settlement agreement within the stipulated 90 days, the tax dispute shall be referred back to the court or tribunal and it is not possible for parties to agree to extend the time for settlement except with the permission of the court or the tribunal to extend the time.
Once the court or tribunal has permitted the parties to a tax dispute to settle the dispute out of court or tribunal, a facilitator is to be nominated, with the consent of the other party to the dispute. In this regard, the Commissioner may recommend a facilitator from amongst the staff of the Authority or the taxpayer may propose one from a list of mediators accredited by an institution recognized in Kenya. Clearly, this means a taxpayer is not bound to choose a Court Accredited Meditator as is the case in the Court Mandated Mediation. The nomination of a facilitator has to be done within fourteen days after the court or tribunal has granted the parties to a tax dispute permission to settle the dispute. The facilitator is to be notified in writing of the nomination by the Commissioner.
In the interest of impartiality and neutrality, a facilitator must not have been involved in any way in the matter which is the subject to the tax dispute or be a practicing tax agent or represent or have represented the taxpayer in any matter or have any interest in the tax dispute. Further, the facilitator has to disclose in writing to the parties to the tax dispute any conflict of interest which may arise before the commencement of the proceedings for the settlement of the tax dispute or which may arise during the proceedings. In that regard, upon the disclosure of a conflict of interest by a facilitator, the facilitator is required to immediately recuse himself or herself from dealing with the tax dispute and another facilitator shall be nominated. This is needlessly too stringent and may lead to undue delays in settlement of tax disputes. The best option would have been to allow both parties to decide whether to continue with the facilitator or press for recusal.
In facilitating the resolution of tax dispute, the Facilitator is bound to hold such number of meetings as may be appropriate, guide the parties to the tax dispute in the settlement of the dispute, promote and protect the integrity, confidentiality, fairness and efficiency of the process; act independently and avoid circumstances that may result in a conflict of interest; and employ the procedures necessary for the expeditious resolution of the dispute. At the same time, the facilitator has to convene the first meeting between the parties to the tax dispute within fourteen days of being notified of nomination. At the first meeting, the parties identify the issues for settlement; agree on a schedule of meetings; decide on the service of documentary material relevant to the tax dispute; agree on the conduct of the meetings; and agree on any other issues necessary to facilitate the settlement of the tax dispute.
Once the settlement meetings commence, the parties to the tax dispute or the parties’ appointed representatives are forbidden from communicating with the facilitator in the absence of the other party and any communication with the facilitator shall only be in relation to the tax dispute. During meetings convened by the facilitator, the parties or their appointed representatives are required to maintain confidentiality and uphold decorum; uphold integrity and fairness; make full disclosure of material facts and documents relevant to the tax dispute; and strictly adhere to the agreed timelines. If a party to a tax dispute is unable to meet any timelines agreed upon at a meeting convened by the facilitator, that party has to notify the facilitator and the other party in writing of the inability and specify the reasons for the inability. In event of failure by a party or their representative is without justifiable cause to attend a meeting convened by the facilitator, the facilitator may appoint another date for the meeting or terminate the process.
The regulations provide for the reasons for settlement proceedings including where a party to the tax dispute opts to terminate the proceedings and notifies the other party, the court or tribunal in writing of the intention to terminate the proceedings or where both parties to the tax dispute mutually agree to terminate the proceedings and notify the court or tribunal in writing. Further, the settlement proceedings may terminate where a party fails to attend three consecutive meetings convened by the facilitator without any justifiable cause or where the ninety days’ timeline required to resolve the dispute has lapsed and an extension of time by the court or the tribunal has not been granted. (2) Upon the termination of settlement proceedings, the facilitator is to send a notice of termination in writing to the parties and the matter stands referred back to the court or the tribunal.
The settlement agreement constitutes the decision between the parties and has to be dated and signed by the parties or their appointed representatives and witnessed by the facilitator. It forms the basis for preparation of tax a dispute resolution consent for filing before the court or tribunal and is binding to both parties. Such agreement is considered to be the full and final settlement of the dispute save where the parties have expressly specified otherwise in the Agreement. The agreement is also confidential and entered into on a “without prejudice” basis and does not form the basis for judicial precedent. If the parties fail to reach a settlement agreement, the tax dispute shall be referred back to the court or tribunal, as the case may be, for determination.
In case a tax dispute is settled wholly or partially a consent agreement between the parties to a tax dispute setting down the terms of the settlement agreement shall be filed with the court or tribunal, as the case may be. Such consent agreement between parties to a tax dispute shall be recorded by the court or tribunal as an order of the court or tribunal. Where a party to a tax dispute violates the terms of a settlement agreement between the parties, the other party may apply to the court or the tribunal for enforcement of the agreement. Each party is to bear its own costs for the settlement of the tax dispute out of court or the tribunal and pay any expert witness they call. Where a taxpayer nominated a facilitator, they shall bear any cost that may be payable to the facilitator. The Commissioner provides a venue for the meetings but where the other party prefers a different venue, that party shall bear the costs of that different venue.
*This article is part of developing series on Specialized Alternative Dispute Resolution in Kenya by Dr. Kariuki Muigua, PhD, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Publisher of the Year 2021 and ADR Lifetime Achievement Award 2021 (CIArb Kenya). Dr. Kariuki Muigua is Kenya’s foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert. Dr. Kariuki Muigua is a Senior Lecturer of Environmental Law and Dispute resolution at the University of Nairobi School of Law and The Center for Advanced Studies in Environmental Law and Policy (CASELAP). He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Dr. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Africa Trustee of the Chartered Institute of Arbitrators and the Managing Partner of Kariuki Muigua & Co. Advocates. Dr. Muigua is recognized as one of the leading lawyers and dispute resolution experts by the Chambers Global Guide 2022.
References
The Tax Procedures (Settlement of Tax Disputes Out of Court or Tribunal) Regulations, 2020; Available at: http://kenyalaw.org/kl/fileadmin/pdfdownloads/LegalNotices/2020/LN123_2020.pdf (accessed on 28/01/2022).
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