RESOLVING TAX DISPUTES WITH REGULATORS
CD: Could you provide a brief overview of the current tax regulatory environment in your region? Are you seeing an increased number of disputes with tax regulators?
Curd: The United States has had transfer pricing regulations in place since the ‘60s and the current version has largely been in place since 1994 – Section 1.482 of the Internal Revenue Code. In the last five years we have seen various updates and changes to the US regulations in response to the globalisation of commerce. We have also seen increased awareness of international tax issues from the rest of the world. The number of countries with transfer pricing regulations has grown from less than 15 countries in 2000 to over 70 countries in 2012. Since transfer pricing, by definition, involves at least two countries in any one transaction, the need to ensure that both countries earn their fair return is very important to both taxpayers and tax regulators. As transaction volumes have grown, so too have disputes. With the global economic downturn, the need for countries to ensure that they maximise tax income has increased thus heightening scrutiny on multinational companies.
Salmond: The tax regulatory environment has been increasingly in the public eye over recent months with large corporates and their advisers under the spotlight. In this context, the Parliamentary Public Accounts Committee and the press has asserted that some multinational businesses that operate in the UK are not paying sufficient tax in the UK. This approach is somewhat simplistic and ignores the complexities of international taxation. That said, this has had an impact on some businesses – particularly those sensitive about their public image – which in some cases have taken a more cautious approach to taxation. Businesses in the public eye are more reticent to pursue tax disputes with HMRC. HMRC is also taking a more coordinated and concerted approach to investigating the tax affairs of those businesses which they perceive are underpaying tax. In some instances, particularly in cases concerning marketed tax avoidance schemes, this has led to an increase in the number of disputes. Interestingly, HMRC has also published data which suggests tax disputes are increasing year on year, with 55,764 taxpayers requesting a review of an HMRC decision in 2011-12, and 10,828 appeals being made to the First-tier Tribunal. Of course most of those appeals never make it to a contested hearing.
Oct-Dec 2013 issue
Hogan Lovells US LLP
Winston & Strawn LLP