Could Guernsey TIEAs be challenged?

Posted: 06/10/2016

Guernsey's Court of Appeal is to consider for the first time whether a decision by the island's Director of Income Tax to grant the request of a foreign tax authority that information gathered from a Guernsey financial institution be forwarded by the Director to that foreign tax authority, could be subject to judicial review.

If it is open to judicial review, the Court of Appeal will consider whether the decision by the Director of Income Tax to issue a notice to a Guernsey financial institution, following a request received from the Indian tax authorities under a Tax Information Exchange Agreement (TIEA), was valid.

The Court of Appeal hearing, which will be held later this year, could pave the way for an apparently valid notice issued by the Director of Income Tax to be subsequently struck down by the courts.

Under the Income Tax Law in Guernsey, the Director of Income Tax has the power to issue a notice for the production of documents and information where there is a request from a foreign tax authority that meets the criteria of a TIEA between Guernsey and that foreign country.  

There is a right of appeal against the issue of a notice under the Income Tax Law, however at a hearing of the Royal Court of Guernsey that took place the day before, the presiding Judge decided that the right of appeal was not available in this case as the taxpayer, whose affairs are being investigated by the foreign tax authority, was not the recipient of the notice. 

The Royal Court further refused permission for judicial review on the grounds that the Director's decision is taken pursuant to a binding international agreement and as such, is not subject to judicial review by the courts. In any event, the Judge said that the taxpayer has an alternative remedy, namely to challenge the issue of the request by the tax authorities of India in his home jurisdiction.

At a sitting by the Bailiff as a single judge of the Court of Appeal the following day, the Bailiff granted the taxpayer leave to appeal the decision of the Royal Court regarding whether the issue of the notice is open to judicial review but refused an application to stay the operation of the notice. As a result, the recipient of the notice was still obliged to comply with the notice within the required time frame.

However, the Bailiff granted an injunction preventing the Director of Income Tax from transmitting documents and information provided by the financial institution in compliance with the notice to the Indian Tax Authorities, pending the outcome of the appeal.

In this ground-breaking matter, Carey Olsen represents the Guernsey financial institution as the recipient of the notice. Laila Arstall, Counsel at Carey Olsen, said: "The case raises critical issues of public interest regarding the exchange of information in relation to tax matters in an era of increased pressure on tax authorities to implement standards of international co-operation which cut across the individual's desire to maintain confidentiality over his private affairs."

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