Chinese Companies Expect More Cross-Border Tax Disputes

Chinese companies are now among the most litigious over tax disputes, a survey has found, with 80% saying they are more likely to go to court over disputes to counterbalance aggressive enforcement.

Chinese tax experts cite digitalisation, mergers and acquisitions and divestures and a lack of guidance from tax authorities as the three primary drivers of future tax disputes in the next 12 months.

International law firm Baker McKenzie said China-based respondents handled an average of seven live tax disputes annually for a total average value of $270 million per company.

The survey found 72% of Chinese respondents said that tax audits and disputes are increasingly international in scope, with 79% predicting cross-border tax disputes will rise in the next 12 months.

Baker McKenzie’s latest report, “Risk Reshaped: Tax Disputes Outlook 2022-2025”, concluded that in a changing environment deeply affected by business and policy transformation, global organisations are challenged by a rise in tax disputes.

They will continue to increase in 2022 and possibly beyond, adding further stress to companies’ already-strained financials as a result of Covid-19.

The report surveyed 1,200 tax experts in Australia, China and Japan, as well as in France, Germany, Italy, Mexico, Netherlands, UK and US.

Global companies and organisations faced $269 billion in tax disputes in 2021, up from about $75 billion in 2018, and three-quarters of respondents forecast the value of tax disputes will rise even higher in 2022.

“Digitalisation and business transformation continue to be huge drivers of controversy worldwide,” Scott Frewing, a partner in Baker McKenzie’s Palo Alto office, said.

“There is no consensus on how to define value and value generation, so jurisdictions determine liability differently, and when there’s a big variation in the nominal tax rate, the imbalance is even more pronounced,” he added.

George Russell

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George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.