In the past, many tax disputes were run as technical debates, where the parties (largely) agreed the facts, the court had little contested evidence to consider, and the focus was on the precise interpretation of the law. That is no longer the case – and tax lawyers now have to grapple with the same evidential challenges faced in commercial litigation or investigations.
So, what have been the biggest changes in recent years to affect tax disputes?
- Data: Much more data (especially emails and IMs, which tax authorities see as the ultimate contemporaneous evidence).
- Nature of disputes: Less focused on technical interpretation and more “purpose test” disputes, transfer pricing cases, and procedural disputes.
- Reputation/politics: Greater pressure on tax authorities to reach a “winning” position.
- Powers: Enhanced powers for tax authorities and greater use of them.
Does this shift indicate a lack of trust from tax authorities?
Yes, but more often at the broader institutional level, where tax authorities are acutely aware of the need to avoid being seen to do “sweetheart deals”, and are under pressure to investigate every large business case thoroughly.
Can that be improved if there are contemporaneous witnesses?
Witnesses can play a key role in explaining matters to the tax authority, but it is critical to ensure that this matches any documentary evidence, as taxpayers have been ‘burnt’ before where witnesses are contradicted by emails.
So taxpayers may face a barrage of information requests. Are there any lessons from other areas?
Yes, many of the lessons from large scale investigations apply equally to tax cases: (i) set in place a clear process for collecting/managing data; (ii) use outsourced reviewers/AI to get through material so specialists can focus on what really matters; and (iii) take a consistent line on privilege/data privacy.
With so many disputes being cross border, what lessons can we take from other global investigations?
It is important to have the best support in each jurisdiction; and ensure that evidence is managed so that it can be rolled out in similar disputes elsewhere.
Dawn raids are clearly very challenging. What lessons can be learnt on how to handle them?
These powers are not really new (and indeed available to other regulators). It is important to have clear procedures in place and to practice them – and, wherever possible, to use the same procedure for tax dawn raids as for any others.