Tax Information Exchange Agreements
06 December 2013
Tax Information Exchange Agreements ("TIEAs") are international agreements which allow governments to exchange information relevant to their domestic tax laws and as provided for within the TIEAs. Jersey has entered into numerous TIEAs, in compliance with the principles set out in the OECD Model Tax Convention, in order to comply with international standards of financial regulation, anti-money laundering and combating the financing of terrorism.
As at December 2013, Jersey has concluded 32 TIEAs with the following countries: Argentine Republic, Australia, Austria, Brazil, Canada, China, Czech Republic, Denmark, Faroe Isles, Finland, France, Germany, Greenland, Iceland, India, Indonesia, Ireland, Italy, Japan, Latvia, the Netherlands, New Zealand, Mexico, Norway, Poland, Portugal, South Africa, Sweden, Switzerland, Turkey, the United Kingdom and the United States of America.
The Taxation (Exchange of Information with Third Countries) (Jersey) Regulations 2008, as amended, (the "Regulations"), sets out how each TIEA will operate, and the procedure for how information will be obtained in each jurisdiction. In Jersey, requests under the TIEA regime must be made to the competent authority, namely the Comptroller of Taxes (the "Comptroller").
Scope of TIEAs
The scope of information that can be obtained under each TIEA is broadly the same although the types of taxes covered may vary in each TIEA as agreed between the countries party to them. In order to be able to request assistance a requesting country must prove that the requested information is foreseeably relevant:
- to the administration and enforcement of the domestic laws of the parties concerning the taxes covered by the TIEA; and
- to the determination, assessment, enforcement or collection of tax or to the investigation of tax matters or prosecution of criminal tax matters.
There is no obligation to provide information which is not:
- held by the authority requested to provide such information; or
- in the possession of the said authority; or
- obtainable by persons who are within the said authority's territorial jurisdiction.
Information is wide ranging and is defined in each TIEA as meaning "any fact, statement, document or record in whatever form". The Comptroller, by virtue of the Regulations, has authority in Jersey (subject to the Regulations and each TIEA) to obtain and provide upon request, (i) information held by banks, other financial institutions and any person, including nominees and trustees, acting in an agency or fiduciary capacity; and (ii) information regarding the ownership of companies, partnerships, collective investment schemes, trusts, foundations and other persons, including information on all persons in an ownership chain, and in the case of:
- collective investment schemes: information on shares, units and other interests;
- trusts: information on settlors, trustees, protectors and beneficiaries; and
- foundations: information on founders, members of the foundation council and beneficiaries.
As provided for under the Regulations, the information requested can be information within an individual's knowledge or belief, or recorded in a document or any other record in any format that an individual has in their possession, custody or control. Therefore recipients of notices issued by the Comptroller must be mindful of the extent of the information they retain (and in what form), in order to ensure that they disclose all relevant information in compliance with the notice.
Where the request for information relates to a civil tax matter, the request can only be made for matters arising on or after the date of execution of the TIEA. In contrast, requests for information concerning criminal tax matters can be made for any period prior to or after the execution of the TIEA. This has been confirmed in the case of Volaw Trust and Corporate Services Limited and Larsen v Office of the Comptroller of Taxes  JRC 095 (the "Volaw Case").
Requests for information
Each TIEA sets out guidelines as to what a request should contain and emphasis is placed upon the "greatest detail" being provided by the requesting party in relation to its request.
Each request must be in writing and must specify the following:
- the identity of the person under examination or investigation;
- the period for which the information is requested;
- the nature of the information requested and the form in which the requesting party would prefer to receive it;
- the tax purpose for which the information is sought;
- the reasons for believing that the information requested is foreseeably relevant to the tax administration and enforcement of the requesting party, with respect to the person identified in the first bullet point of this list;
- grounds for believing that the information requested is present in the requested party or is in the possession of or obtainable by a person within the jurisdiction of the requested party;
- to the extent known, the name and address of any person believed to be in possession of or able to obtain the information requested;
- a statement that the request conforms with the laws and administrative practice of the requesting party, that if the requested information was within the jurisdiction of the requesting party then the competent authority of the requesting party would be able to obtain the information under the laws of the requesting party or in the normal course of administrative practice and that the request is in conformity with the TIEA; and
- a statement that the requesting party has pursued all means available in its own territory to obtain the information, except where that would give rise to disproportionate difficulty.
Any request made by a party to a TIEA must contain the detail outlined above. If a request is not compliant with the above, the requested party may decline to assist.
In the Volaw Case the Royal Court held that "for the purposes of deciding whether to act on a request the Comptroller is at liberty to ask the requesting state authorities for clarification or further information but is under no obligation to do so; nor is he under any obligation to require the production of evidence in support of facts of which he is informed in order to verify them for himself…it is not for him to reach any final conclusion on where the truth lies: his role is not to act as final adjudicator but simply to decide, having regard to the material before him, whether there are "reasonable grounds for believing" the two matters prescribed by the first paragraph of Regulation 3". The Comptroller is therefore entitled to ask for confirmation whether, for example all means available in the requesting party's own territory to obtain the information have been exhausted and provided that the requesting party says 'yes', the Comptroller need not consider that point any further.
"Fishing expeditions" are not permitted. This is directed at situations where a foreign authority cannot provide the Comptroller with any reasonable basis for believing that the person subject to any tax investigation will have any useful information. If a request constitutes a fishing expedition, the Comptroller may decline to provide the information requested. The Update to Article 26 of the OECD Model Tax Convention provides useful guidance on what constitutes a fishing expedition, and lists examples where requests constitute fishing expeditions.
When Jersey may decline to assist
In addition to requests that constitute "fishing" (as outlined above), a request may be declined where:
- it is not made in conformity with the relevant TIEA;
- the foreign authority has not pursued all means available in its territory to obtain the information, except where recourse to such means would give rise to disproportionate difficulty; or
- the disclosure of the information requested would be contrary to public policy.
Notices issued by the Comptroller
There are two categories of notices that the Comptroller is able to issue under the Regulations upon receipt of a request from a foreign competent authority that he deems reasonable to progress, (i) notices issued direct to taxpayers (i.e. the individuals or entities that are the subject of the request from the foreign competent authority); or (ii) notices issued to third parties ("Third Party Notice") in relation information regarding a taxpayer. These notices must be issued in writing.
Where a Third Party Notice is issued, the Comptroller must provide the taxpayer in question with a copy of the Third Party Notice within 7 days. However, the Regulations provide for circumstances where the Comptroller need not provide the taxpayer with a copy of the notice, and indeed, prohibit the third party in question from disclosing the Third Party Notice to the taxpayer or any information relating thereto.
The Comptroller would not need to disclose the Third Party Notice to the taxpayer if he is satisfied that, for example, (i) the taxpayer has committed a criminal offence; (ii) disclosure to the taxpayer would prejudice the assessment, collection or recovery of tax or the investigation or prosecution of tax matters; or (iii) the requesting foreign competent authority requests that the taxpayer not be informed on due to concerns similar to (i) and (ii) above. Where a third party is prohibited from disclosing the notice to the taxpayer, it cannot do so unless it is able to obtain written consent from the Comptroller or the Royal Court of Jersey. Breach of the prohibition is a criminal offence.
The Third Party Notice need not name the taxpayer to whom it relates provided that it states an account number or other, similar, identification for the tax information required. In the event that the Third Party Notice does not name a taxpayer or at the time the Third Party Notice is given, the Comptroller does not know the taxpayer's name and address, the Comptroller would need to provide the taxpayer with a copy of the Third Party Notice within 7 days from receiving the response and information from the third party (unless the Comptroller has reasons not to notify the taxpayer as set out above).
Challenges to notices issued by the Comptroller
Upon receipt of a notice, the taxpayer or a third party can choose to (i) comply with the requirements of the notice and produce the information requested within 15 days of receipt of the notice; or (ii) challenge the notice.
Failure to respond to the notice within the timeframe provided, or making any statements in any response that are false, misleading or deceptive are offences under the Regulations (and individuals guilty of such offences would be liable to 12 months imprisonment and a fine). There are additional offences listed in the Regulations, including aiding and abetting, or liability of directors, managers and partners of body corporates and partnerships who commit offences.
On 6 November 2013, the Taxation (Exchange of Information with Third Countries) (Amendment No. 7) (Jersey) Regulations 2013 came into force which introduced a number of material amendments to the Regulations. Most importantly the purpose of the amendments was to narrow the scope of challenge to notices, by forcing a taxpayer or third party into a judicial review of the Comptroller's decision, i.e. establishing that the Comptroller was acting illegally, irrationally, unreasonably or his decision making was procedurally improper. Prior to this amendment, if a taxpayer or third party was to challenge a notice, it did so by way of an administrative appeal, and the court would consider the matter "de novo" (or afresh).
Additionally, the amendments have removed the requirement on the Comptroller to provide the taxpayer with his "reasons" for issuing the notice, thereby limiting the information presented to recipients of notices and making it more difficult to challenge notices received from the Comptroller. A third party will also not be able to use a prohibition or failure to notify a taxpayer as a ground of challenge.
Therefore the Regulations now provide that any challenge must be made by way of judicial review, within 14 days of receipt of the notice. It is important to note that where a party wishes to challenge the notice, they are still required to provide the response and information requested to the Comptroller within the timeframe stipulated in the notice, or 15 days if no deadline is given.
Further, if an application for judicial review is unsuccessful, an appeal can only be made to the Privy Council, provided that leave to appeal is granted. Accordingly, there shall be no right of appeal to Jersey's Court of Appeal.
The Comptroller must not provide to the foreign competent authority the tax information provided by the taxpayer or third party until the time period for commencing an application for judicial review has expired, the application for judicial review has been withdrawn or dismissed, or he is permitted to do so by the Royal Court.
Prior to the amendment of the Regulations, the only authority concerning challenges of notices was the Volaw Case, where it was held that "It is no part of the Comptroller's function when deciding whether to issue a Regulation 3 notice in response to a request under the TIEA, or this Court's function on any appeal from such a decision, to resolve contentious issues of Norwegian tax law or to reach definitive conclusions about whether the person the subject of the request is or is not liable to Norwegian tax. Indeed, in the ordinary way it is unlikely that the Comptroller would have expert evidence of Norwegian tax law in front of him at the time when he is called upon to make his decision…and it would be impractical that he should be required to obtain such evidence and undertake a process of detailed evaluation before coming to a conclusion." The threshold which the Comptroller therefore had to meet was low. It will be interesting to see how the Royal Court treats the decision making process of the Comptroller in the context of a judicial review. This firm is currently involved in a judicial review application which, we believe, will be the first under the Regulations as amended.
Liability in Complying with Notices
The Regulations do not impose on a taxpayer or third party any obligation to provide information subject to legal professional privilege.
The Regulations also provide that a recipient of a notice will not incur any civil or criminal liability by reason of compliance with the notice and providing information to the Comptroller.