Bermuda: International Tax Information Exchange In Bermuda Clarified

The Bermuda Court of Appeal has ruled that the target of an intergovernmental request for information under a Tax Information Exchange Agreement (TIEA) may require the Attorney General to produce the terms of the request in order to confirm that the request meets the statutory requirements under the International Co-operation (Tax Information Exchange Agreements) Act 2005 (TIEA Act 2005).

In The Minister of Finance v Bunge Limited [2013] CA(BDA) 4 CIV the Court of appeal considered a notice (Notice) issued to Bunge Limited (Bunge) by the Attorney General pursuant to a request from the Government of Argentina (Request) under an Agreement between Bermuda and the Argentine Republic for the Exchange of Information Relating to Taxes (Argentina/Bermuda TIEA).

The relevant provision of the TIEA Act 2005 empowers the Minister of Finance to require production of any information which the Minister may require with respect to a request for assistance made pursuant to a TIEA.

Request for Assistance

Bunge argued that the person on whom a notice under the TIEA Act 2005 is served must know the terms of the request, in order to determine whether the information sought is in respect of a request for assistance at all, and if so, whether the request was made in accordance with the relevant TIEA.

The Minister of Finance argued that the TIEA Act 2005 did not require disclosure of a request and that such disclosure was restricted by the terms of the Argentina/Bermuda TIEA.

In a ruling which has significant implications for the operation of the TIEA Act 2005, the Court ruled that:

1. On the true construction of the 2005 Act, the person on whom a notice to produce information is served is entitled to see, and the Minister of Finance is bound to produce, the terms of the Request, so far as they are relevant to the notice that is given to enable that person to know whether the notice is valid; and

2. There is a "principle of justice and fairness" which provides an independent ground for requiring production of the terms of the Request in a particular case.

In addition, the Court ruled that disclosure of the terms of the request in either of the above circumstances would not involve any breach of Bermuda's international obligations because the Argentina/Bermuda TIEA expressly allowed disclosure in the course of judicial proceedings and the TIEA Act 2005 includes an express right to seek judicial review.

Judicial Review

Moreover, the Court of Appeal held that the rights of the person on whom the notice is served to obtain the terms of the notice through exercise of their right to judicial review should be recognised before proceedings are begun. The Court of Appeal took the view that the extent of disclosure by the Minister of Finance before proceedings are begun should reflect the disclosure that would be ordered by the Court if proceedings were brought.

In this regard, a redacted copy of the request which revealed sufficient information to demonstrate that the request had been made in accordance with the relevant TIEA would be sufficient. Alternatively, the Court of Appeal suggested that a notice setting out the terms of the request verbatim might be held to be sufficient disclosure and there would be no right to see the original.

The Court of Appeal declined to decide the point but thought it most unlikely that a hearing in the absence of the Applicant to allow the Court to consider the unredacted portions of the request would be permissible.

No Costs Order

The Court also rejected an argument that regardless of the outcome, no costs order should be made against the Minister in proceedings of this type. The Minister of Finance submitted that the proceedings are necessary in order to ensure that Bermuda performs its international obligations to preserve confidentiality and to safeguard its reputation for observing them. This was rejected because the Court would only order costs against the Minister in a case where the Court was unable to accept submissions made on his behalf as to the content of Bermudian law.

In what is perhaps a lesson learned for the Bermuda Government, the Court of Appeal also pointed out that the Argentina/Bermuda TIEA, like many others, allows the Minister of Finance to decline a request for assistance where the requesting party does not agree to pay the costs of providing the assistance, whether incurred by the Minister or any other person. On this basis the Court of Appeal assumed that the Minister of Finance was entitled to be indemnified by Argentina against all costs properly incurred including any costs order made against him, unless for any reason it was decided to proceed without that safeguard.

Prior to the ruling in Bunge, the target of a notice under the TIEA Act 2005 was generally required to initiate proceedings in order to obtain the terms of a request to satisfy himself that the information demanded was in fact required for the legitimate purpose of a request made in accordance with the relevant TIEA. In these circumstances, the cost and publicity associated with such proceedings often led to blind compliance.

Blind Compliance

Following the Court of Appeal's decision, the target of a request will have an opportunity to obtain the relevant terms of the request and to challenge any notice issued under such a request where it does not comply with the relevant TIEA. This is expected to lead to considerably increased accountability for requesting states and increased certainty for domestic targets of such requests.

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