BACKGROUND
1. The purpose of TIEAs is to facilitate the exchange between countries of information relevant to the enforcement of tax laws. TIEAs have their origins in the OECD's initiative on "harmful tax practices", launched in 1998. In 2002 Jersey publicly committed itself to supporting the initiative. The need to exchange tax information is a major part of the initiative.
2. TIEAs have now been concluded between Jersey and 21 countries: the USA, the Netherlands, Germany, Norway, Sweden, Denmark, Greenland, the Faroe Islands, Finland and Iceland, the UK, France, Ireland, Australia, New Zealand, Portugal, the People's Republic of China, Turkey, Mexico, Canada and Indonesia. All are currently in effect, except the People's Republic of China, Turkey, Mexico, Canada and Indonesia which will come into effect some time in 2011.
3. Jersey is negotiating further TIEAs with Argentina, Brazil, the Czech Republic, Greece, India, Italy, Japan, Poland, the Republic of Korea and South Africa with Hungary, Spain, Luxembourg, Russia and Switzerland some way behind. Jersey has also approached Austria, the Slovak Republic and Saudi Arabia regarding TIEAs, of which formal responses are awaited. The agreements, once signed, take many months to come into legal effect. Both contracting countries have to go through internal ratification procedures.
4. The Taxation (Exchange of Information with Third Countries) (Jersey) Regulations 2008 set out how TIEAs will operate.
PURPOSE OF TIEAs
5. The purpose is stated in Article 1 of each TIEA:
exchange of information that is foreseeably relevant to the administration and enforcement of the respective laws of the Contracting Parties concerning taxes covered by this Agreement, including information that is foreseeably relevant to the determination, assessment and collection of such taxes, the recovery and enforcement of tax claims, or the investigation or prosecution of criminal tax matters.
6. It is plain therefore that the agreements concern both the determination and enforcement of civil tax liability and the investigation of possible tax fraud.
FISHING EXPEDITIONS
7. It has always been one of the fundamental principles of TIEAs that they do not permit "fishing expeditions" – that is, broad, vague and unsupported requests for information, from any source, made in the hope that something of interest may turn up.
8. The texts of the TIEAs are designed to ensure that such fishing expeditions are not allowed. Requests under TIEAs must be detailed and must specifically justify why they are made. There must already be in the other country an existing investigation or examination relating to tax concerning a specific person or persons.
WHAT TIMESCALE IS COVERED?
9. In criminal tax matters the information can concern potential offences committed at any time. However not all TIEAs are expressed this widely. The applicable timescale depends on the wording in the individual agreements. Conversely for civil tax matters the information that can be sought is limited to determining liability to tax after the TIEA came into force.
IN WHAT CIRCUMSTANCES MAY A REQUEST FROM THE OTHER COUNTRY BE MADE?
10. The requesting country has to make a formal request for information covered by Article 1 (see paragraph 5 above). It is irrelevant whether or not Jersey collects information of the sort requested for its own tax purposes, and it is also irrelevant whether or not it is a crime in Jersey to commit the alleged crime being investigated by the requesting country. The laws and procedures of the requesting country are paramount.
11. Requests can only be made when the requesting country's tax authority is unable to obtain the requested information by other means domestically, unless doing that would be disproportionately difficult.
WHAT INFORMATION COULD BE SOUGHT?
12. Each agreement states that each Contracting Party must be able to obtain and provide upon request:
a) information held by banks, other financial institutions, and any person, including nominees and trustees, acting in an agency or fiduciary capacity,
b) (i) information regarding the beneficial ownership of companies, partnerships and other persons, including in the case of collective investment funds and schemes, information on shares, units and other interests;
(ii) in the case of trusts, information on settlors, trustees, protectors and beneficiaries; and in the case of foundations, information on founders, members of the foundation council and beneficiaries,
provided that this Agreement does not create an obligation on the Contracting Parties to obtain or provide ownership information with respect to publicly traded companies or public collective investment funds or schemes unless such information can be obtained without giving rise to disproportionate difficulties.
13. It is plain that the TIEA request is intended to be able to see through banking confidentiality and through any company, trust or other fiduciary structure – and to focus on who has an interest in the assets concerned.
WHAT INFORMATION MUST THE REQUESTING COUNTRY PROVIDE TO JERSEY?
14. The agreement also sets out at length what information the requesting country must provide. The request must relate to an ongoing examination of or investigation into the tax affairs of a particular person, in respect of whom information is believed to be held in Jersey. The request must be detailed:
Any request for information shall be formulated with the greatest detail possible and shall specify in writing:
a)the identity of the person under examination or investigation,
b)the period for which the information is requested,
c) the nature of the information sought and the form in which the requesting Contracting Party would prefer to receive it,
d)the tax purpose for which the information is sought,
e) the reasons for believing that the information requested is foreseeably relevant to the administration and enforcement of the tax law of the requesting Contracting Party, with respect to the person identified in subparagraph a) of this paragraph,
f) grounds for believing that the information requested is held in the requested Contracting Party or is in the possession of or obtainable by a person within the jurisdiction of the requested Contracting Party,
g) to the extent known, the name and address of any person believed to be in possession of the requested information,
h) a statement that the request conforms with the laws and administrative practice of the requesting Contracting Party and that the information would be obtainable by the requesting Contracting Party under its laws or in the normal course of administrative practice in response to a valid request made in similar circumstances from the requested Contracting Party under this Agreement,
i) a statement that the requesting Contracting Party has pursued all means available in its own territory to ] obtain the information, except those that would give rise to disproportionate difficulties.
15. It is significant that sub-paragraph (g) above, relating to the person believed to have the required information, begins "to the extent known ...". It appears that a request can therefore be submitted without stating who in Jersey is believed to hold the information sought.
16. This raises the question how Jersey would deal with a request to the effect "we believe X has assets held in a Jersey trust called Y, but we do not know who holds the relevant records. Please find out, and get the information from them." In the case of a trust, since there is no register of trusts in Jersey, then it is hard to see how the Comptroller could act on the request - short of writing to all the trust companies to ask them if they administer the trust concerned. This would in our view be fishing, and we do not believe that he would do it.
17. It follows that the likelihood of success of a request from another country for information from Jersey under a TIEA depends heavily on how much information the requesting country already has.
18. If the request does not comply with the requirements of the TIEA, then Jersey ought not to act upon it and could be expected to decline the request. As per the individual agreements a country "may decline to assist" with a request:
a) where the request is not made in conformity with this Agreement;
b) where the requesting Contracting Party has not pursued all means available in its own territory to obtain the information, except where recourse to such means would give rise to disproportionate difficulty; or
c) where the disclosure of the information requested would be contrary to the public policy of the requested Contracting Party.
19. The agreement also sets out some other reasons why Jersey might decline to assist, including where complying would involve carrying out "administrative measures at variance with its laws and administrative practices" – which could perhaps be used to justify not embarking on general fishing expeditions, or not requiring, for example, the compilation of a register of trusts.
20. If the request conforms with the agreement, then Jersey will take steps to seek the information from the relevant people or organisations.
FROM WHOM COULD INFORMATION BE SOUGHT?
21. Where the Comptroller does not hold the requested information, he may seek it from those likely to hold it. The agreement states:
If the information in the possession of the competent authority of the requested Contracting Party is not sufficient to enable it to comply with the request for information, that Contracting Party shall use at its own discretion all applicable information gathering measures necessary to provide the requesting Contracting Party with the information requested, notwithstanding that the requested Contracting Party may not, at that time, need such information for its own tax purposes. [our emphasis]
22. The Regulations set out how this is to operate in practice. Regulation 2 deals with the Comptroller's power to request information direct from the "taxpayer". The "taxpayer" is defined as the "person whose liability to pay tax is under examination or investigation in a third country." The "taxpayer" may be required to provide (our emphasis added):
" a document or record in the taxpayer's possession that contains or in the reasonable opinion of the Comptroller may contain tax information that is relevant to a liability to tax to which the person is subject or may be subject, or to the amount of any such liability;
" tax information within the taxpayer's knowledge or belief that the Comptroller reasonably requires as being relevant to any such liability, or to the amount of any such liability; and
" evidence within the taxpayer's possession that the Comptroller reasonably requires as being relevant to the taxpayer's residential status for the purposes of these Regulations.
23. Regulation 3 deals with obtaining tax information from "any person other than the taxpayer". The type of person covered by this Regulation is not limited. It could be any person or organisation. It would include trust companies and banks. A person other than the "taxpayer" can only be required to provide information if the Comptroller has reasonable grounds for believing:
" that a taxpayer may have failed to comply, or may fail to comply, with a domestic law of a third country concerning tax; and
" that any such failure has led, is likely to have led or is likely to lead to serious prejudice to the proper assessment or collection of tax.
24. If the above applies, the Comptroller may require the person to provide tax information that is relevant to:
" a liability to tax to which the taxpayer is subject or may be subject;
" the amount of any such liability; or " the taxpayer's residential status for the purposes of these Regulations.
WRITTEN NOTICE FROM COMPTROLLER
25. The procedure in both cases, whether the information is sought from the "taxpayer" or any other person, is that the Comptroller must give a reasonable opportunity to provide the document or record, before issuing a written notice. The notice then has to give a period of at least 30 days to comply.
26. Normally the Comptroller must give written reasons for issuing the notice. However this does not apply where to give reasons would identify someone who has provided information relied upon in deciding to make the notice, or where the Comptroller is satisfied the "taxpayer" has committed a criminal offence of any kind in the other country, or where to do so would prejudice the assessment or collection of tax.
27. There is no prohibition in the Regulations against recipients of such a Notice informing their client (the "taxpayer") that a notice has been received. However in cases where the underlying investigation is or may be criminal, and where it is not apparent that the taxpayer has already been notified of the investigation, prudence would suggest making further inquiries of the Comptroller to be satisfied that it is appropriate before contacting the client. Depending on the facts, a SAR may be justified.
NON-COMPLIANCE WITH A NOTICE
28. If the Comptroller considers that a "taxpayer" has not complied with a notice, or there are reasonable grounds to suspect that he will not comply with a notice, he may apply to the Royal Court for an order to comply.
29. Where a person other than a "taxpayer" is believed to hold relevant information, and either that person has failed to comply with a notice, or there are reasonable grounds to suspect that he will not comply with a notice, or "the taxpayer to whom the requirement relates or any of the class of taxpayers to whom it relates" has failed or may fail to comply with the tax law of the other country and such failure is likely to lead to serious prejudice to the proper assessment or collection of tax, the Royal Court may, on the application of the Comptroller, compel provision of the information.
CRIMINAL OFFENCES UNDER THE REGULATIONS
30. It is a criminal offence not to provide information requested in a notice, and also an offence to fail to comply with a court order to provide information. The punishment is a fine.
31. It is also a criminal offence punishable by fine to alter, conceal, destroy or dispose of any document or information covered by a notice.
32. It is an offence to aid, abet, counsel or procure any of the above offences. This means for example that any directors of a company that has committed one of the offences may be personally guilty, and liable to the same punishment, if he assisted in, encouraged or helped bring about the offence by the company.
CHALLENGE TO A NOTICE
33. There is a right of appeal to the Royal Court, under Regulation 14, against a notice from the Comptroller. The appeal must be brought within 21 days of receipt of the notice. The notice is suspended until the Royal Court has heard the appeal. The court may confirm, vary or set aside the notice, and may award costs as it thinks fit.
34. A challenge could be based on a failure by the requesting country or the Comptroller to comply with any of the requirements of the TIEA or the Regulations.
35. There would also always remain the remedy of judicial review if the decision to issue the notice could be challenged as biased, unlawful, irrational, in breach of natural justice, etc, but the circumstances would have to be extreme for such a challenge to succeed. The most promising challenge would be under regulation 14.
36. Since the requirements for a detailed request are lengthy, there are many ways in which a request could be held to be inadequate. The Royal Court would no doubt be keen to ensure that no fishing expeditions are entertained: that there are sound reasons to believe that the person or persons under examination or investigation may be liable under the civil tax laws or criminal laws in the other country, and that the Jersey persons subject to the notice hold relevant information.
WHAT USE CAN BE MADE OF THE INFORMATION OBTAINED?
37. The agreements all make clear that information obtained under a TIEA should be kept confidential by the requesting country. The information should only be disclosed to persons or authorities (including courts and administrative bodies) who are concerned with the purpose in Article 1 – i.e. the administration and enforcement of laws concerning tax, including criminal tax matters. It may be made public in court proceedings in the other country.
38. The information may not be used by the other country for purposes other than those in Article 1 unless the relevant Jersey authorities consent in writing. It may not be disclosed to any other jurisdiction.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
