From contract to evidence:  Audit proof cross-border structures

Today, tax authorities are less interested in how a transaction is described on paper and far more focused on what actually happens in practice. Their core question is simple: Does the reality of the business match the story told in the contract? 

When the answer is unclear, even the most carefully written agreements quickly lose their protective value.

This disconnect appears most frequently in intercompany services, management fees, IP licensing, and similar arrangements. On paper, these structures often look sound. Under audit, however, authorities look beyond legal form and test whether real value was created, whether activities can be demonstrated, and whether the people involved behave consistently with the contractual design.

Over time, one pattern becomes clear: structures fail not because contracts are missing, but because evidence is fragmented or absent. Contracts explain intent, but audits are decided on proof.

Audit proof structures are built when documentation is approached as a strategic defence rather than a compliance exercise. In practice, this means ensuring that four layers of evidence reinforce each other.

The first layer is contractual. Agreements and scopes define roles, pricing, and responsibilities. They set the framework, but by themselves they rarely carry the discussion in an audit.

The second layer is operational. Auditors want to see what was actually done: tangible outputs, project records, communications, internal reporting, and traceable activity. When services cannot be clearly reconstructed through contemporaneous records, the contractual narrative starts to unravel.

The third layer is financial consistency. Invoicing patterns, margins, and economic outcomes should make sense in light of the activities performed. Repetitive descriptions, perfectly flat margins, or documentation created only after questions arise often draw immediate attention.

The final and most decisive layer is behavioural. Who makes decisions? Who controls the work? Who assumes risk when things go wrong? In many audits, this is where structures ultimately fail. When day-to-day behaviour contradicts the contractual allocation of functions and risks, authorities follow the behaviour, not the contract.

Across jurisdictions, the same warning signs appear again and again: generic service descriptions, lack of traceable outputs, local entities acting without real authority, or documentation prepared reactively. These issues tend to matter more than technical wording or legal form.

The lesson is straightforward. In cross-border structures, documentation should be designed with the expectation that it will one day be tested. When contracts, operations, financial outcomes, and human behaviour tell the same story, structures become resilient. When they do not, even well-intentioned arrangements are difficult to defend.

Ultimately, strong documentation is not about volume or formality. It is about credibility. In today’s audit environment, the most effective structures are those that can clearly demonstrate rather than merely describe how value is created across borders.

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Prof Sergio Guerrero Rosas, Managing Director at Guerrero y Santana, has over 25 years’ experience advising companies from SMEs to multinationals, as well as individuals, on tax and estate planning. He is also Global Vice Chair of the GGI Trust & Estate Planning (TEP) Practice Group.