Cross-border tax controversy

The BEPS Multilateral Instrument or “MLI” enables jurisdictions to swiftly implement the treaty-based recommendations from the BEPS package, including some of the minimum standards. The MLI has been signed by over 75 jurisdictions and it represents one of the most important changes to cross-border tax norms in history. It will impact business structures, transactions and potentially even business models themselves, and is expected to generate significant levels of controversy relating to the interpretation and application of treaties.

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Tax controversy management comes in several forms and phases. In all areas of tax, there are actions that can help prevent controversy and minimize the risk of an audit by positioning a taxpayer’s case appropriately when an audit is imminent or in progress or when it turns into a dispute. EY takes a deliberate approach to managing tax controversy risk by:

• Providing robust support at the time an intercompany transaction is planned and put into place
• Monitoring the implementation to support compliance with the up-front plan and preparing appropriate documentation on a timely basis when events occur that result in increased risk from a controversy perspective
• Communicating regularly with corporate tax departments for timely, coordinated and consistent responses to tax authority inquiries
• Managing a taxpayer’s dealings with tax authorities in an efficient, coordinated and proactive manner, since being proactive is the best defense for businesses that seek to limit uncertainty and minimize the potential for significant controversy

EY assists clients with building controversy strategies that help satisfy a company’s objectives. Such strategies often involve robust planning up front, preventative (transfer pricing) controversy advice where needed, consideration of advance (pricing) agreements (APA), audit defense work followed by a domestic administrative appeal, review of alternative dispute resolution (ADR) opportunities (such as proactive joint audit processes), preparation and implementation of a request for competent authority assistance under the mutual agreement procedure (MAP) article in an income tax treaty, and assistance in litigation.

We have deep knowledge of policy and procedural developments in the industries and jurisdictions where our clients do business, which help us counsel them to act proactively and react accordingly.

An APA is designed to provide certainty of tax treatment for intercompany transactions and can be an important tool as you seek to manage and mitigate your global tax risk. In addition to tax certainty, strategic use of an APA — the forum of choice for the most challenging transfer pricing issues — often results in time and cost savings relative to a transfer pricing examination, as well as freedom from penalty exposure. In addition, APAs with experienced tax authorities can provide a beneficial impression with less experienced tax authorities.