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What's behind Asia's Uber-sized problem?

Uber New York
Shannon Stapleton | Reuters

Just weeks after settling a dispute with New York City's mayor over limiting new drivers, Uber is once again making headlines but this time in Asia, where the controversial ride-sharing app is facing fresh legal accusations.

Hong Kong police arrested five Uber drivers on Tuesday; one year after the firm began operations in the city. Chief inspector Bruce Hung Hin-kau told reporters that the arrested drivers were charged with not possessing hire-car permits and third party risk insurance, both vital for driving a private car for reward in the city. Computers and documents were also taken away from Uber offices. Two interns were taken into custody but have since been released.

Uber's North Asia spokesman Harold Li told CNBC that the company ensures all rides are covered by insurance. "We stand by our driver-partners 100 percent and welcome the opportunity to work closely with the authorities towards updated regulations that put the safety and interests of riders and drivers first," he said in an e-mailed statement.

Tuesday's events are the latest in a series of enquiries surrounding Uber's blurry legal status in the region.

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Australia confirmed this week that 29 drivers were facing charges of operating an illegal taxi service. Meanwhile, five drivers were detained in Jakarta in June after local taxi organizations complained that Uber was operating without a taxi license. In May, Chinese officials raided the firm's Chengdu office on "suspicions of unlicensed operations," a month following a similar search of Uber's Guangzhou office.

Globally, the firm's legal status varies. It's currently banned in countries including South Korea, Spain, Germany, and Thailand. Last month, it won a rare victory when an Ontario court cleared the firm of improper licensing charges and said there was no evidence it operated as a taxi broker.

What's eating officials

At the heart of these investigations is the question of how the company defines its business. Uber has repeatedly reiterated its status as a technology company, stating it doesn't own or operate vehicles or employ drivers.

Industry experts such as research firm Forrester say there is no confusion regarding its business model. "It is just a matchmaking service operating on supply and demand," senior analyst Clement Teo told CNBC.

But it's not so clear for regulators. For example, the Australian Taxation Office last week ordered Uber drivers to collect and pay a goods and services tax (GST) that applies to firms providing "taxi travel services." Uber is challenging those rules because it doesn't consider itself a taxi company, but Australia is one of many countries who believe the services provided by Uber are no different to to those of taxis.

Therein lies the challenge for the company; its similarity to a traditional taxi company has resulted in a wave of lawsuits and tax troubles.

Experts say the firm's status as a disruptor, i.e. a company revolutionizing an industry, is a key reason behind these woes.

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"Uber has been accused of everything from a reckless attitude to safety to putting cab drivers out of work. I believe that this is because the Uber taxi ride-sharing app bypasses traditional cab companies and traditional ways of working, and the accompanying regulatory mechanisms of the industry including tariff bands," Daphne Kasriel-Alexander, consumer trends consultant at Euromonitor, told CNBC.

The broader issue is how new technology itself is disruptive, with licensed taxi drivers resentful of the emerging band of freelance transportation services, she added.

Investigations are further complicated by the fact that Uber insists that its drivers aren't employees, thus placing most of the responsibility for local compliance on individual drivers.

"Rather than shifting risk onto workers, Uber may well be creating a new market, with a new allocation of risk and reward. How much risk drivers will bear, and what rewards they will enjoy, are very much open questions," Brishen Rogers, Associate Professor of Law at Temple University, said in a June essay.

Outside of documentation, public safety is perhaps the biggest concern for governments following the alleged rape of a female passenger by an Uber in New Delhi last year. Sexual harassment incidents continue to plague the company, such as the arrest of a driver in Calcutta three weeks ago for allegedly masturbating in front of a female passenger.

Uber's not sweating, yet

Despite the lengthy stream of problems, Uber isn't expected to switch tactics anytime soon.

"Ultimately, they've come to a size where they won't change the business model," Teo said.

The five-year old firm is valued at nearly $51 billion, the Wall Street Journal reported at the end of July, making it the world's highest valued start-up.

Moreover, its popularity hasn't been hurt. The app still ranks highly among the most downloaded apps on Google Play store and the Apple store, Euromonitor noted.

Drivers continue to flock to the service as well. Despite its cloudy status in Australia, Uber announced this week that it had "created" 15,000 jobs in the country so far this year.