The government may adopt a mediation mechanism that will help companies determine their future tax liabilities and even settle disputes, said a person familiar with the development. The concept, which is widely prevalent overseas, is being discussed amid preparations for the February 1 budget, the person said.

Mediation will allow taxpayers to get a fix on how much they need to pay and avoid disputes. “This will bring down litigation substantially,” the person said.

The mediation process involves examining tax legislation and all relevant facts in detail. Neutral mediators, chosen from a panel, will negotiate and arrive at a settlement. The decision is binding on both sides.

The government could also look at expanding the Dispute Resolution Panel mechanism, which handles transfer pricing disputes, as an alternative, the person said.

Currently, the various Authorities for Advance Rulings take up issues from a technical standpoint and do not cover wider issues of law, hence the need for a broader framework. Besides, AAR decisions have not helped in containing litigation as most of these have been getting appealed both by taxpayers as well as the income tax department.

The Companies Act had in 2016 provided for a formal mediation process to settle disputes relating to the law but such a formulation is not present in the Income Tax Act.#casansaar (Source - Economic Times)