Jersey court dismisses first-ever appeal under TIEA regs

The Royal Court of Jersey has dismissed the first ever appeal brought as a consequence of a request for information under a Tax Information Exchange Agreement (TIEA).

The appeal had been against a decision that called on Volaw Trust & Corporate Services, a Jersey fiduciary services provider, to produce documents and records having to do with one of its clients – a Norwegian taxpayer named Berge Gerdt Larsen – and certain companies in which it was said that Mr Larsen was suspected of having had an interest.  The information had been requested by Norway’s Tax Authority.

Under a tax information exchange agreement Jersey had signed with Norway that took effect in October 2009, Jersey’s comptroller of taxes is empowered to request such information from Jersey financial services entities when the Norwegian Tax Authority asks for it.

‘Precedent’

Carey Olsen Jersey partner John Kelleher said the ruling, which was handed down last month but received little attention until now, would set a  precedent for future cases of this nature brought before the Jersey’s Royal Court.

“The court determined a number of important questions and provided useful guidance on the practical effect of the regulations and TIEAs,” Kelleher said.

“Of particular interest was the conclusions reached by the court in relation to whether information that predated the entry into force of the TIEA could be obtained, the use to which information obtained in relation to a ‘criminal tax matter’ could be put, and the factors that the comptroller should take into account when deciding to issue a notice.”

According to Carey Olsen, the court agreed with the comptroller that information that predated the TIEA could be obtained if it related to a “criminal tax matter”, as the TIEA distinguishes between the date that the agreement came into force for “criminal tax matters” and “all other tax matters”.

The court further concluded that information obtained for the purposes of a criminal investigation “could be subsequently used for any of the other purposes set out in the TIEA, with the effect that the information obtained could also be used to conduct a civil tax assessment”, according to a summary of the case written by Carey Olsen.

“The court also agreed that the comptroller had good grounds for believing that Norway’s suspicions in respect of Mr Larsen were well-founded and he was, therefore, entitled to issue the notice under the regulations”, the law firm’s summary noted.

Kelleher said the ruling showed that the court recognised  that, for TIEAs to operate effectively, “the threshold to which the comptroller must be satisfied before issuing a notice cannot be unduly onerous” as he “is not obliged to resolve issues of foreign law, or reach definitive conclusions in respect of an individual’s tax liability.

“In a climate where there is an increasing focus on tax transparency, I am sure that there will be further challenges to notices issued by the comptroller pursuant to TIEA requests and it will be interesting to see how this area of the law develops in the future.”

TIEAs are bilateral agreements under which countries or territories agree to cooperate in tax matters through the exchange of information.

Getting countries to sign up to TIEAs was one of the first steps in the Organisation for Economic Cooperation and Development’s campaign for more than a decade to get countries to cooperate more, in an effort to crack down on tax evasion and “harmful tax competition”.

Before 2009, only 45 TIEAs had been signed, but that year saw a stampede of countries and offshore jurisdictions keen to sign TIEAs with as many others as possible, ahead of a major meeting of G20 countries that September. That year, the OECD announced that 12 TIEAs with what it regarded as “significant countries” would be considered the minimum necessary for a jurisdiction to be regarded as having substantially implemented the OECD’s standards for the exchange of information, and thus guaranteeing it a place – at that point in time, at least – on its so-called white list.

Now the OECD’s website shows some 518 TIEAs have been signed, including such TIEA combinations as San Marino with Vanuatu, Aruba and the Bahamas, and the FaroesIslands and the Marshall Islands.

To see a copy of the ruling and download it, click here.