This was an appeal to the Court of Appeal from the decision of the Royal Court of Jersey, by which the Royal Court dismissed an appeal brought under Article 14(1)(c) of the Taxation (Exchange of Information with Third Countries) ( Jersey) Regulations 2008 (the “Regulations”) and upheld the decision of the Comptroller of Taxes (the “Comptroller”) to issue a notice dated 28 May 2012 (the “Notice”) on Volaw Trust & Corporate Services Limited (“Volaw”). The Court of Appeal recognised that “underlying the dispute is the tension between the private interest in commercial confidentiality and the public interest in international co-operation in the investigation of potential tax evasion”.
The Notice was issued in response to a request for information from the Norwegian Tax Authority (the “NTA”) pursuant to an agreement between Jersey and Norway for the exchange of information relating to tax matters, which came into force on 7 October 2009 (the “TIEA”). The Notice required the production of certain documents held by Volaw said to be relevant to the tax affairs of Mr Berge Gerdt Larsen (“Mr Larsen”), a Norwegian citizen, for the period from 1 January 1996 to 31 December 2008.
The Appellants’ key grounds of appeal can be summarised as follows:
- the Royal Court erred in construing the Regulations as retrospectively changing the law with regard to the disclosure of documents created before the TIEA came into force, and therefore documents pre-dating 7 October 2009 cannot be obtained (the “Retrospectivity Issue”);
- the Royal Court erred in failing to address the question as to whether there were “reasonable grounds” for suspecting that Mr Larsen was liable to income tax (the “Reasonable Grounds Issue”);
- the Royal Court failed to have sufficient regard to the Appellants’ rights under Article 8 of the European Convention on Human Rights (the “Forseeability Issue”); and
- the Royal Court erred in holding that when information was provided on the basis that it was in respect of a “criminal tax matter” it could be used for civil tax purposes (the “Use Issue”).
The Court of Appeal’s decision turned on the construction of the TIEA and the Regulations.
Article 1 of the TIEA sets out its scope and provides that:
“The Parties shall provide assistance through exchange of information that is foreseeably relevant to the administration and enforcement of the domestic laws of the Parties concerning the taxes covered by this Agreement, including information that is foreseeably relevant to the determination, assessment, recovery and enforcement or collection of tax with respect to such persons subject to such taxes, or to the investigation of tax matters or the criminal prosecution of tax matters in relation to such persons”.
In accordance with Article 4 of the TIEA, Jersey is obliged to provide information on request “for the purposes referred to in Article 1”.
Article 10 of the TIEA draws a distinction between its entry into force for “criminal tax matters”
(i.e. tax matters involving intentional conduct whether before or after the entry into force of the TIEA which are liable to prosecution under the criminal law of the requesting Party) and “all other tax matters”. The TIEA came into force for “criminal tax matters” on 7 October 2009 and for “all other tax matters” on 7 October 2009 “but only in respect of any tax year beginning on or after the first day of January of the year next following that in which the Agreement enters into force or, where there is no tax year, all charges to tax arising on or after that date”.
The Court of Appeal interpreted the Regulations that were in force at the date of the Notice. Although the Regulations have since been amended in a number of respects, the Court of Appeal’s judgment nonetheless provides useful guidance on how tax information exchange operates in practice.
Regulation 3(1) of the Regulations specified the standard to which the Comptroller had to be satisfied before issuing a notice. The Comptroller had to have “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
- “any such failure by the taxpayer has led, is likely to have led, or is likely to lead to serious prejudice to the proper assessment or collection of tax”.
The standard to which the Comptroller now has to be satisfied under Regulation 3(1), following an amendment in January 2013, is arguably less onerous in that he has to “decide that it is reasonable to respond to a request concerning a taxpayer”.
Regulation 14 of the Regulations provided that both a person on whom a notice is served and a taxpayer in respect of whom a notice relates has a right of Appeal to the Royal Court and “on hearing the appeal, the Royal Court may confirm, vary or set aside the requirement to which the appeal relates”. However, following an amendment on 6 November 2013, the statutory scope of an appeal to the the Royal Court against a decision of the Comptroller to issue a notice under the Regulations is limited to an application for judicial review.
Prior to addressing the grounds of appeal, the Court of Appeal considered the duties of the Comptroller upon receipt of a request for information and “how far beyond assessment of the material contained in the Request itself the Comptroller should go”. The Court found that the Comptroller should give the taxpayer or the third party service provider an opportunity to make representations. However, this does not mean that the Comptroller should hold a “mini- trial” and, provided that the Comptroller has “reasonable grounds” for his belief or opinion, he is empowered to act on such belief or opinion.
The Retrospectivity Issue
The Court of Appeal recognised that there is a general presumption against legislation operating retrospectively and cited the principle enunciated in Phillips v Eyre (1870) LR 6 QB 1 that legislation “ought not to change the character of past transactions carried on upon the faith of the then existing law”. However, the presumption was not engaged in the present case as there was “no question of the legal character of any past transaction, act or omission by the Appellants being changed as a result of the 2008 Regulations: the basis of liability for Norwegian tax or prosecution for a Norwegian criminal offence pertaining to tax remains exactly the same as before”.
The Court of Appeal agreed with the Royal Court that documents generated prior to the entry into force of the TIEA on 7 October 2009 could be obtained if the documents related to a “criminal tax matter”, as a consequence of Article 10 of the TIEA, which draws a distinction between the entry into force provisions for “criminal tax matters” and “all other tax matters”, and the definition of “criminal tax matters” in Article 3, which refers to intentional conduct having taken place either “before or after the entry into force of the TIEA”.
The Reasonable Grounds Issue
The Court of Appeal was satisfied that there were available to the Comptroller “at the very least” reasonable grounds for believing that the NTA’s suspicions could be well founded, having regard to the NTA’s case which had been set out “at considerable length in the Request”, and that the NTA’s concerns were evidently shared by the Norwegian police who had issued a Bill of Indictment.
The Appellants’ assertion that the evidence of Mr Larsen and Volaw had to be accepted as it had not been subject to cross-examination was rejected by the Court of Appeal. Cross-examination was not a technique available to the Comptroller to test evidence and neither the Comptroller nor the Royal Court was required to determine whether or not the Appellants’ evidence was truthful. Importantly, the Court of Appeal found that the Comptroller was entitled to draw inferences from Mr Larsen’s failure to address the NTA’s suspicions in his affidavit.
The Forseeability Issue
The Appellants submitted that the Royal Court failed to have sufficient regard to their rights under Article 8 of the European Convention on Human Rights, which provides a right to respect for an individual’s “private and family life, his home and his correspondence”, subject to certain interferences that are “in accordance with law” and “necessary in a democratic society”, and which must be grounded on accessible and foreseeable law. The Appellants said that it was not foreseeable when they created the documents sought by the NTA that they would become vulnerable to information exchange under a law which post-dated their creation.
The Court of Appeal dismissed the Appellants’ argument as “irrelevant” and found that the Regulations are accessible and foreseeable so as “to enable a person to have it as a guide to their conduct after it came into force”, and thus do not contravene Article 8.
The Use Issue
The Appellants asserted that the Royal Court erred in holding that when information was provided in respect of criminal tax matters it could be used for any of the other purposes in Article 1 of the TIEA (i.e. civil tax purposes).
The Court of Appeal agreed with the Royal Court that there is nothing in the TIEA that prohibits information obtained in relation to one or more of the purposes set out in Article 1 being used for any of the other Article 1 purposes.
The Court of Appeal provided helpful guidance on the Comptroller’s duties following receipt of a request for information under a TIEA, and the appropriate procedure that should be invoked to ensure that the taxpayer’s rights are protected, without inhibiting effective information exchange. The Court recognised that whilst the Comptroller should allow a taxpayer and/or a third party service provider an opportunity to make representations, he is not required to conduct a “mini- trial”.
The Court of Appeal’s decision reinforces Jersey’s commitment to the effective exchange of tax information.