Changing faces of tax disputes and risk management

AS GLOBAL tax rules grow more complex, driven by digitalisation and international tax initiatives, businesses are navigating an uncertain landscape. With audits by tax authorities becoming more frequent and data-driven, the old playbook of reactive compliance is obsolete.

Experts say the imperative is a shift towards proactive engagement, robust governance and strategic reputation management, where dispute resolution hinges on negotiation and perception as much as statute.

“From a Singapore perspective,” said Rohan Solapurkar, tax and legal leader at Deloitte Singapore, “the broad trend is that disputes are centred less on complex structures and more on whether underlying documentation adequately supports the characterisation of the transaction or the business activity.”

He added that organisations can “mitigate the escalation of disputes by maintaining a clear tax governance framework with defined responsibilities, documentation protocols and internal escalation procedures”.

The new dispute landscape

Tax disputes facing multinationals are growing in scope and sophistication. 

A key area is in transfer pricing, where authorities intensely scrutinise commercial substance, seeking evidence that headcount, decision-making and functions align with reported profits. 

Huang Jingsi, senior vice-president and global head of tax at Olam Agri & Olam Group, said tax regulators in developed markets are “observed to be conducting separate transfer pricing audits, shortly after completing general tax controls, reopening previously agreed positions”.

She noted a trend of authorities reaching beyond borders through exchange of information clauses in tax treaties to gather data on overseas related parties, making disputes more uncertain and complex.

Adding another layer of complexity is the greater attention by tax authorities on double taxation agreements (DTAs).

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Vikna Rajah, a partner at law firm Rajah & Tann, said that with Singapore’s extensive network of over 100 DTAs, disputes frequently arise over issues involving tax residency and beneficial ownership.

“With companies seeking to enjoy tax treaty benefits, there has been increased scrutiny from tax authorities around the world questioning whether these companies are tax resident in the jurisdictions where they are relying on the DTAs,” he added.

A new controversy also looms: the second pillar of the Base Erosion and Profit Shifting (BEPS) project. 

As a core part of the Group of 20 and Organisation for Economic Co-operation and Development’s (OECD) BEPS project, Pillar 2 compels large multinationals with annual revenues over 750 million euros (S$1.1 billion) to pay a minimum tax in every jurisdiction where they operate, regardless of local incentives.

More than 140 jurisdictions are implementing a 15 per cent global minimum tax, with Singapore’s in effect since January 2025.

Observers say the move has introduced untested, complex calculations for group effective tax rates. “As a relatively untested legislation... we expect Pillar 2 disputes to become a prominent fixture in the international tax dispute landscape,” said Rajah, noting that its potential interplay with transfer pricing rules will create fresh ambiguities.

Audits in the digital age

The tax audit process has been transformed by technology, with authorities now using data analytics to flag anomalies, making audits more targeted. This demands proactive preparation. 

“The crux is to maintain clear and accurate records,” said Rajah, noting that disputes are often prolonged by companies unable to produce comprehensive evidence. This risk could be mitigated by maintaining documentation for the statutory minimum of five years.

The data-driven environment also requires internal coherence.

Solapurkar said that from an organisational perspective, it is “critical that the quality of data is accurate since that will be the bedrock when preparing all documents”. He stressed the need for a “single source of truth” in data management, as companies often grapple with multiple disconnected systems.

“This will ensure greater security, consistency and will also give more surety to the tax authorities,” he said.

Huang added that a crucial human element is needed, noting that “data lacks circumstantial facts and contextual background”. She advised that businesses should meticulously document the rationale behind key decisions to present an accurate picture years later when an audit takes place.

When a dispute becomes public, reputational damage can dwarf financial costs, making its management a critical tax strategy. In Singapore, where litigation levels are relatively low, the decision to fight in court carries significant weight.

“Hence,” said Solapurkar, “when there is a dispute, it is extremely important that an organisation weighs the reputational risk of going ahead with the litigation.”

The foundation of reputational defence, he added, is ensuring that “any activity or transaction is not devoid of any business or commercial substance”, supported by clear governance and cooperation with authorities.

For Huang, the internal tax function is the front-line reputation manager. “Robust documentation is critical in ensuring that an accurate and consistent picture is presented to the tax regulators,” she said. This proactive coordination for clear and consistent messaging builds trust and mitigates risk.

Rajah pointed to the confidential mechanisms available. Singapore’s DTAs provide for a mutual agreement procedure (MAP), a forum where tax authorities from two jurisdictions can resolve disputes. “Importantly, MAP is confidential and therefore should not damage the taxpayer’s reputation,” he said.

Compared with global systems, Singapore stands out for efficiency, predictability and commercial pragmatism. 

Huang noted that the Republic’s dispute resolution mechanisms are considered “effective compared to global peers”. She credited the “simplicity of the various systems” and the “principled and structured approach” of the Inland Revenue Authority of Singapore (Iras) for fostering constructive dialogue.

The statistics support this view. Rajah pointed to OECD data showing that Singapore resolves MAP disputes faster than the global average, at 23.65 months for transfer pricing cases compared with the global average of 30.89 months.

Solapurkar noted that Iras has a predictable, commercially grounded framework and proactive engagement. “Iras is generally proactive in meeting taxpayers to understand business models and to reassess the tax implications of changes in commercial arrangements, which helps reduce the scope of disputes.”

He also highlighted initiatives such as the Advanced Pricing Arrangement and Singapore’s participation in the OECD’s International Compliance Assurance Programme as evidence of a forward-looking, cooperative stance.

Governance as the bedrock

Navigating this new landscape requires foundational strength in tax governance to support organisations in audit preparedness, dispute mitigation and reputation management. 

Rajah pointed to three key Iras initiatives that could help organisations in tax risk management: the Assisted Compliance Assurance Programme for GST controls; the Tax Risk Management & Control Framework for Corporate Income Tax for large companies with complex structures; and the Tax Governance Framework for board-level oversight.

“Over time, commitment to the framework fosters a collaborative and trusting relationship with Iras, which can help reduce compliance costs,” he said.

For Huang, an effective framework involves a clear tax policy endorsed by the board, robust accompanying processes and internal controls and, critically, the right people. “It is therefore important for the internal tax function and finance teams to stay abreast of the latest changes,” she said.

Sharing a similar view, Solapurkar said: “Robust tax governance is increasingly essential as authorities focus not only on the technical correctness of tax positions, but also on the strength of the processes supporting them.”

An effective framework, he said, includes “board-level oversight, defined responsibilities, clear risk-appetite parameters and timely escalation pathways”.

“Organisations that embed tax into their broader risk-management framework are better placed to respond consistently to emerging issues,” he added.

The writer is CEO of Singapore Chartered Tax Professionals, the national institute that benchmarks tax expertise through accreditation and drives excellence in professional standards and technical competency. This series shares insights on the tax issues shaping business today.