As the frequency and duration of tax disputes starts to increase, many tax directors seem somewhat unsure about when to enter into a dispute with tax authorities and what the potential consequences may be.
Rightfully so: tax disputes can soak up valuable resources and take attention away from the day-to-day operations. At the same time, disputes can result in acrimonious relationships between payers and authorities or – in some cases – negative reputational damage in the public arena.
However, as tax laws become increasingly more complex and change becomes ever-more rapid, many tax directors have found that disputes are often the only way to clarify the legality of tax rulings.
Michael Lang asserted that – in his opinion – legislators seemed to have lost a level of respect for the provisions of international law as they strive to introduce protectionist tax regulations that run counter to international treaties. Moreover, he noted a growing trend towards tax treaty overrides, the termination of treaties that do not align with national tax policies and – in some notable cases – the introduction of retroactive regulations. This, he suggested, only adds more uncertainty to an already complex environment for international business.
The panel, which also included Paul Harrison and Martin Lenz, agreed that companies should not shy away from entering into the dispute process with most tax authorities. Indeed, where rulings seem overly aggressive or unfounded, tax directors must consider disputing the findings – if not only to reduce the immediate tax liability, but also to protect against setting a precedent for similar action in the future.
However, the panel also cautioned those tax directors in attendance that the decision to dispute a tax ruling should be taken on a market by market basis. Some markets, they noted, view tax disputes as common practice; but in other markets, tax disputes are seen as an attack against the government and should therefore be avoided at all cost.
As a result, it will be nearly impossible for multinational organizations to take a consistent stance on disputes across all of their markets. Moreover, given the rising complexity and sophistication of tax law, tax directors will increasingly need to rely on local tax litigators and dispute advisors with both a global understanding of the interdependencies between international markets, and hands-on experience and relationships with the tax authorities in their particular jurisdiction.