The second stage of international tax litigation comprises Discovery and Motions.
During this stage, the parties exchange evidence, gather information, and identify the legal and factual issues in dispute. The parties may also file motions requesting the court to resolve procedural or legal matters before trial.
Next, let’s understand the discovery stage.
Discovery is the stage before trial when both sides exchange information and evidence to understand the facts and prepare their arguments. This can include documents, written questions (interrogatories), requests for admissions, and witness depositions.
In the United States Tax Court, discovery is relatively limited. The court expects the parties to first work together informally to exchange information and narrow the issues. Formal discovery tools, such as interrogatories or document requests, are used only if informal efforts fail. Depositions are uncommon and usually require the court’s permission.
In contrast, the United States District Courts and the United States Court of Federal Claims follow procedures similar to those in the Federal Rules of Civil Procedure, with broader discovery. Parties can request extensive documents, take depositions of witnesses and experts, and conduct a more detailed fact-finding process.
In international tax cases, discovery often focuses on documents held by foreign affiliates. These may include intercompany agreements, transfer pricing reports, benchmarking studies, functional analyses, board minutes, and financial statements of overseas subsidiaries. Obtaining this information can raise additional issues, such as foreign privacy laws, restrictions on sharing corporate records, document translation, and arranging testimony from witnesses located abroad.
Next, let’s understand the Motions practice stage.
During or after discovery, the parties may file motions seeking the court’s resolution of certain issues before trial. These can include motions to exclude evidence, motions for summary judgment on specific legal questions, such as treaty eligibility or the characterization of a cross-border transaction, and challenges to expert testimony.
A distinctive feature of the United States Tax Court is the Rule 91 stipulation process, which requires both sides to agree on all undisputed facts and documents before trial. This helps narrow the issues and makes the trial more focused and efficient.
Next, let’s understand the third stage of international tax litigation: pre-trial preparation. During this stage, the parties organize evidence, prepare witnesses, finalize legal arguments, and complete filings required before trial. This stage helps ensure that the case is ready for presentation before the court.