[VOLAW TRUST V COMPTROLLER OF TAXES [2013]JCA239]

The Court of Appeal has dismissed the appeal and confirmed the requirement upon the appellant, Volaw Trust, to disclose the requested information to a foreign tax authority pursuant to regulation 3 of the Taxation (Exchange of Information with Third Countries) (Jersey) Regulations 2008 (“ReguIations”),.

FACTS:

In 2010, the Jersey Comptroller of Taxes (“Comptroller”), having received a request for information from foreign authorities pursuant to a Tax Information Exchange Agreement (“TIEA”), issued a formal notice to Volaw Trust requiring it, pursuant to the Regulations, to furnish “all information, documents, correspondence, financial statements, files and details of any other information concerned with or connected to the named subjects” (being an individual and four companies).

Volaw appealed the Comptroller’s decision to the Royal Court of Jersey which, in May 2013, dismissed the appeal, but gave permission for Volaw to appeal the matter to the Court of Appeal. Until such appeal was heard, the Royal Court stayed enforcement against Volaw of the requirement to provide the foreign tax authority with the requested information.

THE COURT OF APPEAL

The grounds for appeal were substantially the same as heard before the Royal Court.

The Court of Appeal dismissed the appeals upholding the decision of the Royal Court and, consequently, confirmed Volaw was to produce the information required of it pursuant to the formal notice from the Comptroller. However, the Court of Appeal did say that the information was to be made available by Volaw to the foreign tax authority to afford it with assistance in connection with the potential tax liability of only the individual concerned, and not (in connection with) any of the Jersey companies named in the notice.

POSSIBLE PRIVY COUNCIL APPEAL

However, it is worth noting two further related judgments of the Court of Appeal ([2013]JCA26O and [2013]JCA261) regarding a possible appeal by Volaw to the Privy Council. The Court of Appeal refused permission to appeal, but Volaw may also seek permission to appeal directly from the Privy Council. If such permission is granted, the enforcement of the Comptroller’s notice against Volaw will, again, be stayed until the Privy Council reaches its judgment. If the Privy Council refuses permission to appeal, the notice against Volaw will come into effect and it will be required to disclose accordingly.

FACTORS TO NOTE

Due to recent events involving a separate, and unrelated, request for information by the French Authorities, which resulted in Jersey being blacklisted by the French Government, the Regulations have been amended.

Threshold Test: Since the Royal Court’s appeal, the subsequently amended Regulations now provide that the Comptroller is no longer required to decide if it is “reasonable” to respond to a request from foreign authorities. That (now

removed) ”Reasonableness” test required the Comptroller to form an objective state of mind, below certainty, but above suspicion, that an “overseas tax default” had been committed. The change now requires the Comptroller simply to “decide” whether to respond to a request. Therefore, provided the Comptroller acts reasonably as a third party would in his position, the Comptroller is no longer restricted in how he makes decisions. Consequently, the Comptroller has greater scope than previously as to whether issue a notice under the regulations.

Appeal Provisions Changed: The Regulations did not specify the nature and scope (or grounds) upon which the Royal Court may allow an appeal from a decision of the Comptroller. Consequently, in the case of Volaw, the Court of Appeal found that the Royal Court was entitled to consider afresh, rather than review, whether the Comptroller properly issued notice to disclose information. However, since the Royal Court’s appeal, the Regulations now provide analysis that the Comptroller’s decision is only subject to judicial review (i.e. a “check” and balances of the Comptroller’s decision rather than an appeal) with, thereafter, an appeal from the Royal Court direct to Privy Council. The latter appeal is very unlikely in the normal course of events.

COMMENT:

In this instance, it is the changes to the Regulations, rather than the judgment of the Court of Appeal, which should be noted. Our view is that the Comptroller has been granted more unilateral power with his decision making, and those decisions are now only subject to review in the first instance, rather than appeal.

Consequently, trust companies receiving a notice from the Comptroller to disclose information to foreign authorities should note that disclosure is no longer conditional upon circumstances as to whether reasonable grounds exist and whether the Comptroller can form a reasonable opinion that disclosure is relevant. Furthermore, whilst a judicial review of the Comptroller’s decision exists, the grounds for success at judicial review are limited: i.e. there must be one of illegality, unreasonableness or procedural impropriety in the Comptroller’s decision. Unreasonableness in this context is not the same as requiring the Comptroller to form a reasonable opinion that disclose is relevant, rather, that his overall conduct is reasonable in the circumstances. It would be unlikely,  in the norm, that the Comptroller would form a decision which fell due to illegality, unreasonableness or procedural impropriety.

Therefore, the changes are designed to restrict a person’s ability to appeal a notice from the Comptroller and, therefore, it would seem sensible to assume that further challenges against disclosures to foreign authorities will be infrequent for lack of grounds on which to do so. Hence, the changes protect and augment international transparency, being the intention of the TEIAs.