CROSS-BORDER TAX DISPUTES

CD: Could you provide an overview of how the globalisation of commerce, trade and investment has created more fertile ground for cross-border tax disputes?

Bektas: The increased globalisation of commerce, trade and investment has meant that businesses, and therefore taxpayers, are exploring more opportunities in a variety of jurisdictions and supply chains are becoming increasingly cross-border. This had led to a large rise in the number of multinational enterprises (MNEs) and, unsurprisingly, the likelihood of these MNEs being involved in tax disputes across borders. As a natural response to this and in the current economic climate, jurisdictions are becoming more aggressive in their approach to tax compliance and administrations, which has led to an increase in cross-border tax disputes. This is particularly the case where MNEs operate their supply chain across different jurisdictions, which can be due to reasons including cost, regulation and taxation. This increased globalisation and the resultant requirement to familiarise themselves with multiple tax codes – which can have competing outcomes – has created fertile ground for the rise in cross-border tax disputes.

Gregor: Companies have long sought to expand manufacturing and supply chains globally, but a shift has occurred during the last couple of decades from the tangible to the intangible. The evolution of developing intangible assets across borders and the growth of global branding has made it easier for companies to find markets in many jurisdictions. In addition, reaching those markets has become easier with the advent of social media and other new channels for marketing. Revolutions in FinTech and payment systems have also democratised the sales process. These factors all mean that companies are able to sell products and services on a global scale much more easily than ever before. This exposure to global markets means that governments are looking for new ways to tax profits that are derived from their markets.

Oct-Dec 2024 issue

Ashurst LLP

Skadden, Arps, Slate, Meagher & Flom LLP