Global tax controversy newsletter – January 2026

2025 was a busy year for tax controversy which saw Ashurst's Global Tax Controversy team act on a number of high profile mandates, including UK national insurance, VAT and unallowable purpose cases and royalties and transfer pricing in Australia. The January edition of our newsletter reviews some of Ashurst's successes and the key litigation and audit trends we have observed globally. Looking then to 2026, against a landscape of advancing technology and digital infrastructure, we scan the horizon to offer insights to help our clients navigate the broadening powers and changing technological capabilities of global tax authorities.

1. Year in Review

1.1 It was a busy year for the Ashurst UK Tax Controversy team, with key mandates including:

• (a) We acted for Wood Group, a multi-national energy operations and engineering company, in their First-tier Tax Tribunal (FTT) hearing. Wood Group were appealing against an assessment for employer's national insurance contributions (NICs) relating to workers on the UK Continental Shelf.¹ A Wood Group entity was assessed under a previous version of the "Host Employer Regulations" which deem a UK company to stand in the shoes of a foreign company (for employer's NICs purposes) where the personal service of employees working outside the UK is "made available" and "rendered" to a UK company.
• (b) We acted for the Isle of Wight NHS Trust, part of the UK's national health service, in their successful FTT appeal regarding the VAT treatment of supplies of locum doctors to the NHS Trust by private employment agencies.² The NHS Trust successfully argued that such supplies are exempt under a VAT exemption for the "provision of a deputy for a person registered in the register of medical professionals". HMRC argued that this exemption does not apply to exempt supplies of locums and is limited to certain specific supplies relating to general practitioners (a type of doctor). The case raised interesting issues regarding standing, admissibility of non-public material and the limits of conforming construction with EU law.
• (c) In late 2025, the Upper Tribunal (UT) granted Syngenta limited permission to appeal the decision of the FTT. We acted for Syngenta, a leading science-based agriculture company, in their FTT appeal regarding Syngenta's treatment of interest on a related party loan used to partly fund an intragroup reorganisation as giving rise to deductible debits for corporation tax purposes in accordance with the loan relationship rules.³ HMRC successfully argued that Syngenta's main purpose of being a party to the loan was securing a tax deduction and was therefore an "unallowable purpose". The UT granted permission to appeal on the grounds that the FTT had erred in law by not giving due weight to the evidence of one of the witnesses despite it having been unchallenged. The case follows a number of recent UK cases which have considered the "unallowable purpose" rules for the purposes of the loan relationship rules and highlights the complexity of this regime.

1.2 The Ashurst Australia, Tax Controversy team successfully acted for YTL⁴ in a decision that achieved a significant taxpayer win the Federal Court in respect to the capital gains tax exemption for foreign investors, a previously untested provision that was also considered this year by the same court in the Newmont⁵ decision. The Federal Court determined that electricity transmission infrastructure and mining plant and equipment respectively were not taxable Australian real property (TARP). In both judgments, the Court rejected the Commissioner's contention that “real property” bears an ordinary, physical, bricks and mortar meaning for the taxing provision, and instead takes its technical legal meaning – that is, it is not enough that an asset is a big immovable thing sitting on land, the analysis turns on the legal interests, and the estates in the land.

1.3 Elsewhere, our Australian Tax Controversy team also noted that, APAC tax authorities increasingly applied in 2025 a “whole of code” posture, coordinating positions that cut across permanent establishment, transfer pricing including DEMPE/intangibles and royalties, valuation, and anti avoidance rules, in their approach to audits. Our team saw materially broadened information requests and data demands, raising complexity and widening the scope of live controversies for multinationals. This is expected to continue into 2026, and similar observations are being made by our Tax Controversy teams across the Ashurst network.

1.4 2025 saw a landmark litigation year in Australia with decisions that we have seen already start to shaping taxpayer positions and dispute resolution strategies including:

• a) The Full Federal Court found in favour of Oracle⁶ in overturning the earlier refusal to stay domestic proceedings pending the resolution of the Mutual Agreement Procedure (MAP) under the Australia-Ireland Double Taxation Agreement (DTA). This decision confirms the availability of the MAP as a viable treaty route whilst preserving both treaty and domestic rights, empowering taxpayers with the right to choose their preferred dispute resolution pathway, whether that be MAP or litigation.
• b) In G Global⁷, the High Court upheld the validity of legislation retrospectively removing inconsistency between non-discrimination clauses in certain tax treaties (given effect by domestic Commonwealth law) and State legislation imposing foreign surcharge land taxes. The High Court's decision has implications for foreign investors by confirming that non-discrimination clauses in tax treaties do not by themselves render it unconstitutional for Australian States to impose tax on foreign investors.
• c) The PepsiCo⁸ decision was a significant taxpayer win in the High Court with respect to the diverted profits tax (DPT) and embedded royalties. PepsiCo successfully established that payments for concentrate pursuant to exclusive bottling agreements did not include a royalty paid as consideration for the use or right to use intellectually property, and the DPT did not apply because the relevant taxpayers did not obtain a tax benefit in connection with a scheme (read more about this case in our Q3 newsletter.

1.5 In Italy, from a controversy perspective, one of the most important Italian tax investigations in 2025 was the campaign against the tech companies. The campaign began with the investigation commenced by the tax police against Meta, culminated with allegations of tax evasion amounting to €887.6 million, and continued with subsequent investigations against LinkedIn and X. The core challenge is the tax treatment of “free” digital services: although platforms are offered at no monetary cost, users provide personal data as "consideration", and these data are used by the tech companies for commercial purposes. On this view, the services are not truly free, and VAT should be charged on the economic value of the data as consideration in a barter transaction. This position has significant implications for VAT and compliance frameworks in the digital economy.

1.6 Also in Italy, Ashurst assisted:

• Qatar Energy Group with its settlement agreement with the Italian Tax Authorities. The Italian tax police (Guardia di Finanza) started a tax inspection relating to Qatar Chemical and Petrochemical Marketing and Distribution Company Muntajat Q.J.S.C. (Muntajat) and issued a Tax Audit Report challenging the existence of an hidden permanent establishment of Muntajat, nested in the Italian branch of a different Group entity (MBV Italy). We assisted both Muntajat and MBV Italy throughout all phases of the tax inspection, including the preliminary forensic review of emails seized by the authorities. Our strategy focused on reframing the alleged hidden permanent establishment into a transfer pricing issue, concerning the appropriate allocation of profits to MBV Italy. In July 2025, we assisted with the entry into a settlement deed, where MBV Italy was recognized as the sole taxable entity in Italy and its profitability has been subject to adjustment, reflecting the intensity of the functions performed by its unique employees. We expect this successful outcome will result in the dismissal of the criminal case by the Public Prosecutor.
• The Juice Plus+ Group with respect to a challenge raised by two different Offices of the Italian Tax Administration (ITA) against the Italian subsidiary of the Group, The Juice Plus+ S.r.l. The ITA disregarded the Parent-Subsidiary WHT exemption to an outbound dividend from Italy to the UK, classifying the UK beneficiary as a conduit company created with the sole purpose to reduce taxation on outbound dividends, paid back to the US head-office. The focus of the ITA was: (i) the Swiss and USA tax residence of the managing directors of the UK parent company, (ii) the place of effective management of the UK parent company and the lack of power of direction of the Italian subsidiary (i.e. the lack of intervention of the UK parent company in the strategic decisions of the Italian subsidiary) and (iii) the fact that part of the dividend had been paid back from the UK parent company to its shareholder (a tax resident of the UK) and the subsequent transfer of the same amount to another group entity (a tax resident of the Netherlands) up to the USA. The case is now pending before the Tax Court of second instance and may have a significant impact on all other FYs still open for assessment.
• 2R Capital Investment Management LTD, in claiming the application of the 1.2% withholding tax (WHT) under Article 63 TFEU and Article 27(3-ter) of Presidential Decree 600/1973 to outbound dividend distributions to UK resident holding companies. The latter dividends are subject to a 26% WHT rate, which can be reduced to 5% under the applicable Tax Treaty. However, the domestic or treaty rates remain higher than the reduced 1.2% WHT applicable where the beneficiary is resident in Italy, an EU Member State, or an EEA white-list State. In the tax refund request, we highlighted that the differential tax treatment between dividends paid to resident/EU-EEA entities and dividends paid to non-EU holding companies (including the UK) constitute a restriction on the free movement of capital prohibited by Article 63 TFEU, where the non-EU beneficiary is:
  • is not a shell company/wholly artificial arrangement; and
  • is tax resident in a non-blacklisted State or in a State having adequate cooperation and information-exchange instruments in place.

This calls for a EU-compatible interpretation or, where necessary, the disapplication of the domestic rule to guarantee equal treatment at a national level (an overall effective rate of 1.2%), as recognized by recent EU and domestic case law on the subject matter.

1.7 In Spain, a relevant area of focus for the Spanish tax authorities has been the energy sector, including renewables and oil & gas, together with the real estate sector and NPLs business (which have been on the radar for several years). Recurrent areas of focus are (i) transfer pricing (in particular, re-characterizing part of the exempt gain at exit through share deals into service fees, as well as challenge of the general TP methodology and split of profit), (ii) financing structures (including intra-group loans, cash pooling and allocation of expenses); (iii) MIPs and other management remuneration schemes; (iv) restructuring transactions or (v) allocation of expenses into different group entities (including transaction costs).

1.8 Another important area of investigation across Europe (in particular, Italy and Spain) during FY 2025 was in respect of beneficial ownership and substance. While not new, this topic remained highly active, with authorities scrutinising not only dividend distributions and interest but also, notwithstanding the absence of an explicit reference in the law or DTTs, capital gains realised upon exits. The authorities’ approach suggests a continued appetite to probe substance, entitlement to treaty benefits, and the integrity of holding structures, extending beneficial ownership analyses beyond traditional tests and focusing in cash management and governance as evidences of beneficial ownership.

2. Horizon Scanning

2.1 From a broader horizon scanning perspective, we anticipate our global Tax Controversy seeing further complex, multi-jurisdictional challenges to taxpayer positions from increasingly aggressive tax authorities as their technological capabilities increase and they become "more joined up" with their global counterparts.

2.2 For example, in the UK, we expect to see the progression and assertion of further powers announced in the 2025 Budget for HMRC, including enhanced powers for HMRC to obtain information from tax advisors and a new penalty framework. Coupled with a publicly announced increased budget, we expect further momentum from HMRC to tackle adviser facilitated non-compliance moving forwards.

2.3 The UK's Finance Bill 2026 is also set to:

• confer yet further powers and operational capacity on HMRC, helping to shape an even more active and contested tax landscape in 2026; and
• introduce a legal requirement for tax advisers who interact with HMRC on behalf of clients to register with HMRC and meet minimum standards from May 2026, with at least a three-month transition period. The scope of "interaction" is broad and registration will be required for advisers (including SRA-regulated law firms) submitting voluntary disclosures, responses to compliance checks, enquiries, ADR applications and requests for review on behalf of clients.

2.4 With a global data centre market that is experiencing unprecedented interest, data centres and digital infrastructure continue to be a hot topic for tax authorities globally, and we expect that the conceptual complexities as well as the structuring of those investments will bring with them likely disputes with global tax authorities in 2026. We have written recently about structural optimisation of data centre investment structures here and will shortly be publishing a further article in which we will discuss tax and data centres from the perspective of global Tax Controversy.

2.5 In Australia, the establishment of a Private Equity Program within the tax avoidance task force signals a focus on tax risks associated with transactions and activities of both domestic and international private equity participants across the varying stages of the investment cycle. More broadly, the ATO has also committed to elevated scrutiny of financing and marketing hubs, international related party dealings, cross border investment structures and domestic structuring, with greater attention on mischaracterisation risks, supply chain arrangements, and intangibles/royalties. Taxpayers should also be ready for ATO scrutiny on funding and refinancing arrangements in light of the new thin capitalisation and debt deduction creation rules (and associated guidance).

2.6 The continued pipeline of first instance litigation in Australia will see the development and testing of key tax concepts including royalties and transfer pricing (Coca-Cola) and the anti avoidance rules including the general anti-avoidance rules (Ashurst is representing the taxpayer, Hilton Hotels) and DPT (Coca-Cola). Meanwhile, docketed appeals associated with TARP concepts impacting the taxation of foreign investors (YTL), unpaid present entitlements owing to corporate beneficiaries (Bendel), general anti-avoidance rules and dividend stripping rules (Merchant), the taxation of financial arrangements provisions (Tabcorp) and payroll tax associated with rideshare drivers (Uber) will need to be closely followed by tax leaders for precedential changes altering compliance obligations, transactions and dispute resolution strategy.

2.7 Across the APAC region, taxpayers must also navigate a shifting landscape, illustrated by Singapore's updated transfer pricing guidance, Indonesia's new rules associated with digital platforms and cryptocurrency, Vietnam's recent measures in furthering implementation of Pillar Two, and India's landmark direct tax reform to apply from April 2026.

2.8 In Italy, challenges against the tech companies, are expected to continue if not increase, given that VAT should apply uniformly in all jurisdictions under the common system. In this respect, it is worth mentioning that the VAT committee recently released a public paper (i.e. working paper no. 1118/2025) where they provided clearer guidelines on when VAT may arise on "free" services offered by tech companies.

2.9 In Spain, the aggressiveness of the Spanish tax authorities is expected to continue, keeping the same areas of focus and particular interest in the real estate and energy sectors. The Spanish tax authorities are particularly interested in reaching agreements with taxpayers (so called actas con acuerdo) in particular for transfer pricing and other valuation areas. This is designed to accelerate tax collection (immediate payment is a prerequisite for the settlement) and thus decrease the massive number of cases that currently overload the Spanish courts and delay payments to the Spanish Treasury for many years.

2.10 Also in Spain, where we have seen an increasingly high number of transfer pricing adjustments resulting from tax audits, the importance of ensuring that the suitable legal approach is taken by the tax authorities when dealing with a potential transfer pricing contingency has become increasingly clear. Recently, Ashurst's Spanish Tax Controversy team successfully supported a client in persuading the Spanish National High Court that no transfer pricing adjustment should have been made without the relevant arm's length analysis. It remains to be seen whether the tax authorities will comply with the requirement for a suitable legal approach or will continue to rely on other available legal mechanisms such as the use of anti-avoidance clauses, notwithstanding the fact that such mechanisms have been found to be unsuitable by the Spanish courts for disputes of this kind.      

1. Wood Group Engineering (North Sea) Limited v HMRC [2025] UKFTT 01607 (TC)
2. Isle of Wight NHS Trust v HMRC [2025] UKFTT 1114 (TC)
3. Syngenta Holdings Limited v HMRC [2024] UKFTT 00998 (TC)
   
4. YTL Power Investments Limited v Commissioner of Taxation [2025] FCA 1317.
5. Newmont Canada FN Holdings ULC v Commissioner of Taxation (No 2) [2025] FCA 1356.
6. Oracle Corporation Australia Pty Ltd v Commissioner of Taxation [2025] FCAFC 145.
7. G Global 120E T2 Pty Ltd v Commissioner of State Revenue [2025] HCA 39.
8. Commissioner of Taxation v PepsiCo, Inc [2025] HCA 30.