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A paradigm shift for tax disputes

A paradigm shift for tax disputes

As countries seek to defend their tax bases and extract more revenues from value created within their borders, tax authorities and international companies are coming into conflict more often — and this is just as true for tax authorities of competing jurisdictions.

Against this geopolitical backdrop, cross-border tax disputes have risen to new heights and the swell shows no signs of abating anytime soon. Countries worldwide are implementing the sweeping recommendations developed through the Organisation for Economic Co-operation and Development (OECD)’s base erosion and profit shifting (BEPS) project. Advances in technology are giving tax authorities new tools to assess risk and enforce compliance. And tax authorities are learning to cooperate and collaborate with each other like never before.

Some of the most important trends reshaping the global tax disputes environment are:

  • Evolving competent authorities and mutual agreement procedures
  • Development of new mechanisms for preventing disputes
  • Rising impact of arbitration on resolving tax disputes
  • Increasingly digitalized tax systems
  • Tax authorities’ increasingly sophisticated processes for assessing tax risk

As these trends converge, they are set to transform the nature of tax controversy entirely. While this could spell even more tax uncertainty and disputes in the coming years, developments in progress today could ultimately reduce the amount and burden of tax disputes on companies with international operations.

Below we take a closer look at each of these trends.

Takeaways for tax leaders

The volume of cross-border tax disputes is expected to continue to rise as we get deeper into the implementation phase of the OECD BEPS recommendations. The tax authorities are acutely aware of this, and of the stress this increased activity will put on both taxpayer and revenue authority resources alike. Tax authorities are attempting reduce both the volume and burden of tax controversy, for example, by implanting improved risk assessment procedures and offering new dispute prevention mechanisms.

Tax leaders can help reduce their potential tax disputes and speed up their resolution when they happen by:

  • understanding the detailed company data that is now available to tax authorities and the insights it may provide into the company’s tax and financial positions
  • conducting online searches to determine what information about your company and its employees are available to tax auditors on the Internet and social media platforms
  • maintaining detailed contemporaneous documentation of the business rationale for international arrangements and transactions so you can respond quickly and consistently to tax authority queries 
  • taking advantage of tax authorities’ programs to increase tax certainty, such as compliance assurance programs, APAs and tax rulings
  • monitoring how the BEPS proposals are implemented in the countries in which they operate and their impact on the company’s tax positions, including any new rights to force arbitration of tax disputes under tax treaties and domestic laws in EU member countries.

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