Global tax controversy newsletter – Q3 2025
17 October 2025
Ashurst Q3 Tax Controversy Newsletter
This quarter, tax controversy has taken centre stage with landmark firsts, regulatory assertiveness, and a sharpened focus on the intersection of tax and corporate conduct. From the UK’s inaugural prosecution for failure to prevent facilitation of UK tax evasion to Australia’s High Court weighing in on embedded royalties and restructuring, the landscape is shifting. Below, we distil the key developments and trends shaping the risk environment for multinationals.
First-Time Enforcement and Judicial Tests
Australia's highest Court considered the Diverted Profits Tax (DPT) for the first time since it was introduced in 2017. A narrow 4-3 majority found that the DPT did not apply to collect tax in Australia in respect of exclusive bottling arrangements in which PepsiCo or SVC (US) agreed to sell flavour concentrates to an Australian third party. By majority, the Court held that each of PepsiCo and SVC did not obtain a tax benefit in connection with a scheme and was therefore not liable to pay DPT. This was the first time the High Court has provided guidance on the scope of the "tax benefit" test as impacted by amendments in 2013. The Court confirmed that taxpayers usually demonstrate the absence of a tax benefit by identifying a counterfactual which shows what it might reasonably be expected to have done had it not entered into the scheme. In unusual cases such as this one the Court confirmed that taxpayers can discharge their burden of proof by demonstrating that there is no postulate that is a reasonable alternative to the scheme.
The case also tested for the first time the regulator's view that certain distribution arrangements may contain an embedded royalty as consideration for exploiting valuable intellectual property, even where the consideration is expressed to be royalty free. Our article with our detailed comments is available here.
The High Court of Australia has also granted leave to hear a taxpayer's appeal against 2 lower court decisions which sided with the tax revenue in finding that that the general anti-avoidance rules applied to certain steps undertaken by Merchant and related entities in a share sale to a third party. This week the High Court also heard the taxpayer's appeal in Bendel concerning whether unpaid present entitlements owing to corporate beneficiaries were a loan (by way of the provision of financial accommodation) and therefore required compliant loan terms and repayments, or risk deeming a dividend. The matter has been adjourned to enable the parties to address the case absent an assumption that was adopted in the court below. The further hearing day is set to take place in December this year.
In the northern hemisphere, the first charges for failure to prevent facilitation of UK tax evasion have been issued to an accountancy firm, Bennett Verby Ltd for charges relating to alleged research and development repayment fraud. A trial has been listed for September 2027. This comes at a time when the UK Government is strengthening its powers in respect of corporate crime, including the introduction of the failure to prevent fraud offence under the Economic, Crime and Corporate Transparency Act 2023 which came into force on 1 September 2025. Further Ashurst comments are available here.
Taxpayer success in the Spanish High Tax Court
A gas supply utility company has successfully challenged a tax assessment in the High Tax Court in Spain. The Court found in favour of the taxpayer in respect of 3 key issues:
- Whether the cost of acquisition of the assets acquired from a seller who benefits from a deferral tax regime on the capital gains obtained are depreciable for tax purposes by the purchaser until the seller pays the tax on the capital gains obtained on the sale of those assets;
- Whether an intragroup loan should be deemed equity when the borrower had exhausted its capacity to offer security over its assets with the senior lenders; and
- Whether the transaction costs arose on the acquisition of the assets were attributable to the buyer or to the non – resident shareholder (or even the fund manager who instructed the cost on behalf of the acquiring SPV).
The judgement relates to the 2011-14 financial years however, if it is upheld by the Supreme Court after the Spanish tax authorities' appeal, the impact will be much broader as it will affect the various company's pending court cases on the same matter concerning the 2015-2021 financial years.
Spotlight issues from tax authorities
In the UK, enquiries have been raised by HMRC on whether claims for input VAT recovery in property transactions have been validly made on the basis a business can only recover input VAT to the extent it has been correctly charged by the supplier. The focus of these enquiries has been in respect of property transactions, including:
- whether the sale of a property should have been treated as a transfer of a going concern with no VAT charged rather than VAT being charged on the sale; and
- whether services should be considered related to UK land (and therefore subject to UK VAT) or not.
Businesses should ensure that VAT is being correctly charged and if necessary, include protective wording in transaction documents to ensure incorrectly charged VAT can be refunded by the supplier.
Comparatively, the Australian regulator is focusing on mischaracterised arrangements, business models and global value chains in light of the challenges these structures pose to the tax office by limiting the recognition or value of functions (and therefore tax) in Australia.
Corporate restructuring continues to breed controversy
Corporate restructuring, whether in the context of a third-party transaction or internal housekeeping, continues to breed controversy. In Australia, the High Court has confirmed that an energy provider's top hatting restructure of a stapled group did not fall outside the scope of certain capital gains tax (CGT) rollover provisions, leaving participants unable to access an uplift in cost bases following the restructure. The regulator is now expected to release a draft practical compliance guideline in late 2025 concerning the potential tax risks, including the application of the anti-avoidance regimes to arrangements with multiple CGT rollovers. At the same time the revenue office will focus on restructures for the purpose of third party transactions, with a representative of the Australian Taxation Office publicly announcing it will invest into the management of dissipation risk by focusing on multinationals exploiting tax rules through internal restructuring to enable tax free divestment of Australian investments.
Looking Ahead
With economic reform on the agenda in Australia and the UK’s corporate crime regime expanding, the coming months are likely to see further developments in both enforcement and policy. Multinationals should remain vigilant, ensure compliance frameworks are up to date, and be prepared for heightened scrutiny of both cross-border arrangements and internal restructures.
Other authors: Sophie Suri, Counsel; Carmen Profitos, Counsel; Gold Mathoda, Senior Associate; Mia-Turnbull Walsh, Senior Associate; and Rebecca Kell, Senior Associate.
Want to know more?
- PepsiCo successful in Australian High Court tax appeal (13 August 2025)
- Failure to prevent fraud: key insights from UK government guidance (11 November 2024)
