Jersey Unreported Judgments

Taxation - reasons for upholding an appeal against a notice issued under the TIEA.

[2013]JRC262

Royal Court

(Samedi)

30 December 2013

Before     :

J. A. Clyde-Smith, Esq., Commissioner, and Jurats Kerley and Marett-Crosby.

 

Advocate J. Harvey-Hills for the Appellant.

Advocate J. D. Kelleher for the Respondent.

judgment

the commissioner:

1.        On 5^th December, 2013 the Court upheld an appeal by APEF Management Company 5 Limited ("APEF") against a notice issued by the Deputy Comptroller of Taxes ("the Deputy Comptroller") on behalf of the respondent under the terms of the Taxation (Exchange of Information with Third Countries) (Jersey) Regulations 2008 ("the Regulations") pursuant to a request made by the competent French tax authorities ("the French Tax Authorities") under an agreement between France and Jersey for the Exchange of Information relating to Tax Matters ("the TIEA") dated 23^rd March, 2009 and which came into force in Jersey on 7^th October, 2009.  We now set out our reasons.

2.        Both the Regulations and a similarly worded agreement between Jersey and Norway have been the subject of scrutiny in the recent decision of the Court of Appeal in Volaw Trust & Corporate Services Limited & Larsen v Comptroller of Taxes [2013] JCA 239, issued a matter of days before the hearing of this matter, and although the Regulations by which this appeal is governed have since been amended (which we discuss below), that judgment has provided authoritative guidance to this Court.

The TIEA

3.        As explained by the Court of Appeal in Larsen, Jersey's power to conclude bilateral agreements, such as the TIEA, notwithstanding the United Kingdom's responsibility in international law for its international relations, derives from delegation contained in a Letter of Entrustment (see generally C. Powell Recent International Tax Initiatives: JGLR October 2013 p.285 and especially paragraph 11).

4.        The object and scope of the TIEA are set out in Article 1:-

"The competent authorities of 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, enforcement or collection of tax with respect to persons subject to such taxes, or to the investigation or prosecution of criminal tax matters in relation to such persons.

The rights and safeguards secured to persons by the laws or administrative practice of the requested Party remain applicable to the extent that they do not unduly prevent or delay effective exchange of information."

5.        Under Article 3, the taxes covered in the case of France are:-

"Income tax,

Corporation tax,

Taxes on salaries,

Wealth tax,

Inheritance and gift taxes,

Registration duties on transactions,

Value added tax,

as well as any withholding tax connected with the above mentioned taxes."

6.        Article 5.1, deals with the exchange of information upon request:-

"The competent authority of the requested Party shall provide upon request information for the purposes referred to in Article 1.  Such information shall be exchanged without regard to whether the requested Party needs such information for its own tax purposes or the conduct being investigated would constitute a crime under the laws of the requested Party if such conduct occurred in the requested Party.  The competent authority of the requesting Party shall only make a request for information pursuant to this Article when it is unable to obtain the requested information by other means, except where the recourse to such means would give rise to disproportionate difficulty."

7.        Article 5.5 deals with the formulation of the request:-

"Any request for information shall be formulated with the greatest detail possible and shall specify in writing:

(a) the identity of the person under examination or investigation;

(b) the period of time with respect to which information is requested;

(c) the nature of the information requested and the form in which the requesting Party would prefer to receive it;

(d) the purpose under the requesting Party's tax law for which the information is sought.

(e) The reasons for considering that the information requested is foreseeably relevant to tax administration and enforcement of the requesting Party, with respect to the person identified in subparagraph (a) of this paragraph;

(f) Grounds for believing that the information requested is present in the requested Party or is in the possession of, or is in the control of or obtainable by a person within the jurisdiction of the requested Party.

(g) To the extent known, the name and address of any person believed to be in possession or in control of or able to obtain the requested information;

(h) A statement that the request conforms with the law and administrative practice of the requesting Party and the information would be obtainable by the requesting Party under its laws or in the normal course of administrative practice in similar circumstances, in response to a valid request made from the requested Party under this Agreement.

(i) a statement that the requesting Party has pursued all means available in its own territory to obtain information, except where that would give rise to disproportionate difficulty."

8.        Article 7 deals with the possibility of a request being declined:-

"The competent authority of the requested Party may decline to assist:

(a) Where the request is not made in conformity with this Agreement;

(b) Where the requesting Party has not pursued all means available in its own territory to obtain the information, except where recourse to such means would give rise to disproportionate difficulty; or

(c) Where the disclosure of the information requested would be contrary to the public policy of the requested Party."

9.        Article 8 provides for confidentiality:-

"1.      All information provided and received by the competent authorities of the Parties shall be kept confidential.

2.        Information provided to the competent authority of the requesting Party may not be used for any purpose other than for the purposes stated in Article 1 without the prior express written consent of the requested Party.

3.        Information provided shall be disclosed only to persons or authorities (including judicial and administrative authorities) concerned with the purposes specified in Article 1 and used by such persons or authorities only for such purposes including the determination of any appeal.  For these purposes, information may be disclosed in public court proceedings or in judicial decisions.

4.        Information provided to a requesting Party under this Agreement may not be disclosed to any other jurisdiction."

10.      Article 11 provides for  a mutual agreement procedure as follows:-

"1.      Where any difficulties or doubts arise between the Parties regarding the implementation, interpretation or application of the Agreement, the competent authorities shall endeavour to resolve the matter by mutual agreement."

11.      The Regulations were made pursuant to the Taxation (Implementation)(Jersey) Law 2004 in order to provide, in Jersey domestic law, a procedure for, inter alia, obtaining information of the kind described if a request from the competent French authority falling within the parameters of the TIEA is received, with a view to that information being passed on to that authority.

12.      Because the Court of Appeal in Larsen, was concerned with the Regulations before they were amended in October 2012, it is helpful to set out the Regulation with which we are principally involved, namely Regulation 3, in both its original and amended terms.

13.      Regulation 3(1) of the Regulations as originally promulgated was in the following terms:-

"3.      Provision by other persons of information about taxpayer

(1) This Regulation applies if the Comptroller has reasonable grounds for believing -

(a) that a taxpayer may have failed to comply, or may fail to comply, with a domestic law of a third country concerning tax; and

(b) that any such failure has led, is likely to have led or is likely to lead to serious prejudice to the proper assessment or collection of tax."

14.      Regulation 3(1) as amended, and by which this appeal is governed, is in the following terms:-

"3.      Provision by other persons of tax information about taxpayer

(1) Where the competent authority for Jersey decides that it is reasonable to respond to a request concerning a taxpayer, the competent authority for Jersey may require a third party, being a person other than the taxpayer, to provide tax information that the competent authority for Jersey reasonably requires for that purpose."

15.      The words "request", "taxpayer" and "tax information" are defined in Articles 1 and 1A:-

""request" means a request that is made by the competent authority for a third country under a tax information exchange agreement for tax information regarding a person and that complies with the requirements of that agreement;

"taxpayer" means the person who is the subject of a request."

"(1)     For the purposes of these Regulations "tax information" means information that is foreseeably relevant to the administration and enforcement, in the case of the person who is the subject of a request, of the domestic laws of the third country whose competent authority is making the request concerning any tax listed in the third column in the Schedule opposite the entry for that third country, including information that is foreseeably relevant to -

(a) the determination, assessment and collection of such taxes;

(b) the recovery and enforcement of such taxes;

(c) the recovery and enforcement of tax claims; or

(d) the investigation or prosecution of tax matters.

(2)       Tax information may be -

(a)       information within an individual's knowledge or belief; or

(b)       information recorded in a document or any other record in any format, that a person has in his or her possession, custody or control."

The key phrase here, as in the original regulations and in Article 1 of the TIEA, is the phrase "foreseeably relevant".  It is not defined within the Regulations or within the TIEA. 

16.      Jersey's decision to enter into the TIEA with France and into similar agreements with other states derives from its commitment to engage with the OECD (of which Jersey is not a member) and its efforts to address harmful tax practices. The standards of transparency and effective information exchange between jurisdictions have been developed by the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes (of which Jersey is a member).  The standards are primarily reflected in the 2002 Model Agreement on Exchange of Information on Tax Matters (largely replicated in the TIEA) and Article 26 of the Model Tax Convention on Income and Capital (the "Model Tax Convention").  Article 26 provides:-

"The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to the Convention."

17.      The Model Tax Convention contains a commentary on Article 26, which is worth setting out in full:-

"11.    Commentary on the provisions of the Article

Paragraph 1

5.        The main rule concerning the exchange of information is contained in the first sentence of the paragraph.  The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant to secure the correct application of the provisions of the Convention or of the domestic laws of the Contracting States concerning taxes of every kind and description imposed in these States even if, in the latter case, a particular Article of the Convention need not be applied.  The standard of "foreseeable relevance" is intended to provide for exchange of information in tax matters to the widest possible extent and, at the same time, to clarify that Contracting States are not at liberty to engage in "fishing expeditions" or to request information that is unlikely to be relevant to the tax affairs of a given taxpayer.  In the context of information exchange upon request, the standard requires that at the time a request is made there is a reasonable possibility that the requested information will be relevant; whether the information, once provided, actually proves to be relevant is immaterial.  A request may therefore not be declined in cases where a definite assessment of the pertinence of the information to an ongoing investigation can only be made following the receipt of the information.  The competent authorities should consult in situations in which the content of the request, the circumstances that led to the request, or the foreseeable relevance of requested information are not clear to the requested State.  However, once the requesting State has provided an explanation as to the foreseeable relevance of the requested information, the requested State may not decline a request or withhold requested information because it believes that the information lacks relevance to the underlying investigation or examination.  Where the requested State becomes aware of facts that call into question whether part of the information requested is foreseeably relevant, the competent authorities should consult and the requested State may ask the requesting State to clarify foreseeable relevance in the light of those facts.  At the same time, paragraph 1 does not obligate the requested State to provide information in response to requests that are "fishing expeditions", i.e. speculative requests that have no apparent nexus to an open inquiry or investigation."

18.      Both counsel submitted that you cannot improve on the definition of "foreseeably relevant" contained in this commentary, namely that "there is a reasonable possibility that the requested information will be relevant; whether the information once provided actually proves to be relevant is immaterial".  It also provides a useful definition of what is meant by fishing expeditions, namely "speculative requests that have no apparent nexus to an open inquiry or investigation".

19.      We now turn to the background to the matter.

Background

20.      The first requests from the French authorities were made on 8^th June, 2011. There were six requests relating to what were thought to be six companies in Jersey and which, apart from the identity of the company, were in identical terms. They named Mr Jean-Paul Piranda as the taxpayer.  Information was requested from these companies in relation to Wealth Tax owed by Mr Piranda on 1^st January, 2011.  It is necessary to set out the purposes for the requests as this has  remained consistent throughout:-

"Mr PIRANDA   is under examination by the French tax administration regarding the wealth tax 2011.

He was at the head of the family group FRIAL until he transferred his shares to the company GLACIES HOLDING SAS in 2008.  Since then, GLACIES HOLDING SAS is the parent company of the group FRIAL, whose activity consists in the production of frozen products in France.

GLACIES HOLDING SAS is held to 51.80% by the company FROZEN HOLDING SA domiciled in Luxembourg.  Requests for assistance have been sent to the Luxembourg competent authority.  According to the answers, FROZEN HOLDING SA is held by six companies located in JERSEY.

One of these companies is:[ JABBAH CI L.P.]

Address: 22 Grenville Street, St Helier JE4 8PX

Registered Number LP 722 (Jersey Financial Commission)

French tax administration supposes that Mr PIRANDA is a beneficial owner of the company established in Jersey.

As a French tax resident, Mr PIRANDA is under the obligation to pay the wealth tax including the whole assets (located in France and located abroad).

The reasons which suggest that the information requested is held by the authorities of jersey (in accordance with article 5-5-e of the agreement between France and Jersey for the exchange of information relating to tax matters dated March 23rd 2009):

Mr PIRANDA is a shareholder of a French company indirectly held by companies located in Jersey, including [JABBAH CI L.P.]  The control service wonders about the beneficial owners beyond the apparent Jersey companies."

21.      The picture painted was that of the taxpayer, Mr Piranda, as head of a family owned group, had transferred his shares in that group (referred to later as "the Groupe Frial") to Glacies Holding which was in turn ultimately owned as to 51.8% by six companies in Jersey. The implication was that the transfer had been for no value thus giving rise to the suspicion that Mr Piranda must have an interest in the Jersey companies.

22.       Although we can now give much greater background to these matters, it is important to track the matter through on the basis of the information as presented to the Deputy Comptroller by the French Tax Authorities.  The information required was set out in this way:-

"6.       Requested information and documents:

In order to better understand the restructuring of the FRIAL group, the following information is required:

a. Is [JABBAH CI L.P.] a company known from tax authorities?

b. Does the company regularly files tax returns?

c. What is the kind of its activities:  What are the human and material means at its disposal (premises, number of employees ...)?

d. What are the names and addresses of its shareholders (beneficial owners)?  What is the allocation of its share capital?

e. Please provide the articles of association

f. Please provide the turnover reported from 10/11/2010.

g. Is there a current account opened on behalf of Mr PIRANDA in this company?  If yes, thank you to provide the amount of this account to 01/01/2011.

h. What is the kind and what is the amount of assets of the company to 01/01/2011?

i. What activity is carried out by Mr PIRANDA in this company?"

23.      At paragraph 8 of the requests, this confirmation was given:-

"8.       It is specified that all the means available internally to obtain this information were exhausted (in accordance with article 5-5-I of the agreement between France and Jersey for the exchange of information relating to tax matters dated March 23rd 2009)."

24.      A meeting then took place between the late Mr Malcolm Campbell, the then Comptroller of Taxes, and the French Tax Authorities of which there is no record, but at which it must have been pointed out that the third parties in Jersey were in fact limited partnerships.  This gave rise to six revised requests being sent to Mr Campbell on 2^nd September 2011, which were in identical terms, save that the requested information was now set out as follows:-

"a-       Is the limited partnership [JABBAH CI L.P.] known from tax authorities?

b-        Does the limited partnership regularly file tax returns?

c-        What is the kind of its activities?  What are the human and material means at its disposal (premises, number of employees....)?

d-        Is Mr PIRANDA a limited partner in the limited partnership?

e-        If yes, has he invested money/property in the limited partnership?  If yes, how much and when?

f-         Has he withdrawn money or any investments from the limited partnership?  If yes, how much and when?

g-        What is Mr PIRANDA's share of the profit from the partnership?

h-        Please provide the declaration.

i-         Please provide the turnover reported from 10/11/2010.

j-         Is there a current account opened on behalf of Mr PIRANDA in this limited partnership?  If yes, thank you to provide the amount of this account to 01/01/2011.

k-        What is the kind and what is the amount of assets of the limited partnership to 01/01/2011?

l-         What activity is carried out by Mr PIRANDA in this limited partnership?"

25.      It is also noteworthy that rather than seeking disclosure of all of the beneficial owners of what the French Tax Authorities had assumed were companies, the requested information was now focused on Mr Piranda, from which APEF deduces that Mr Campbell had advised them that the original request was too widely drawn.

26.      On 7^th September, 2011, the Deputy Comptroller responded, saying that the requests in relation to the six limited partnerships were mostly in accordance with the TIEA but:-

"In this respect I am able to ask your questions d, e, f, g, j and l relating to all of the limited partnerships, as these all relate directly to Mr Piranda.  However, in relation to question c, relating to the activities of the limited partnerships, I am not sure how this is foreseeably relevant to the enquiry and should be grateful if you would clarify the purpose of the question.  Questions I and k, on the turnover and assets of the limited partnership, may have no relevance to the enquiry if Mr Piranda does not have an interest in the limited partnership, so I myself am limited to the extent to which I can ask for this information."

27.      The French Tax Authorities responded on 28^th November, 2011 in these brief terms:-

"I refer to your letter of 7 September 2011 and wish to let you know that regarding questions c, I and k, the purpose of these questions is to confirm that there is an actual economic activity carried out by the partnerships and that they are not empty shells only created to be used as screens."

28.      On 14^th December, 2011, the Deputy Comptroller wrote to each of the six limited partnerships, stating that he was authorised to require them to provide documents in their possession but pursuant to Regulation 3(4) he was giving them an opportunity to provide the information without a formal notice (that requirement was removed in October 2012). The questions posed were limited to those which he had indicated to the French Tax Authorities in his letter of 7^th September 2011 that he felt able to request.

29.      On 4^th January, 2012, State Street Global Services ("State Street") responded on behalf of the six limited partnerships, confirming that:-

"(a)      Jean-Paul Piranda is not a limited partner in [JABBAH CI L.P.]

(b)       Jean-Paul Piranda has not invested any cash or property in [JABBAH CI L.P.]

(c)       Jean-Paul Piranda has not withdrawn any cash or property from [JABBAH CI L.P.]

(d)       Jean-Paul Piranda is not the beneficial owner of any company, or controls any other entity, which is a limited partner in [JABBAH CI L.P.]"

This was forwarded on to the French Tax Authorities by e-mail on 9^th January, 2012.

30.      On 27^th March, 2012, the French Tax Authorities came back to the Deputy Comptroller asking for further information in relation to this and another case (the identity of which is redacted):-

"[       ]: In the letter dated [  ] January 2012, the trustee of D trust [   ] write:  "Mr [  ] is not a beneficiary of the D trust nor has he received any distributions from the trust.  During our time of trusteeship we can confirm that no company or other entity of which Mr  [  ] was a beneficial owner was a beneficiary of the trust".  At this stage of the exchange, the point is that we don't know why Mr [   ] has transferred his shares to the trust.  And without this understanding, suspicion of any mischief has not been totally removed.  Don't you think it could be possible to know who the beneficiaries of the D trust are in order for us to understand that these persons have no link at all with Mr  [   ]  and therefore to be sure that Mr [  ]  did not do anything wrong (but just sold his shares to third parties)?  This result would be very satisfactory for us and, of course this information will be used according to the provisions of the treaty.

AFG/59889/1:[the reference for the subjects of this appeal] My concern is similar than in the case before: what would be very satisfactory for us is to be sure that Mr P transferred his shares to third parties (investors).  With this in mind, don't you think it would be possible to have the identity of the partners of the partnerships to check that they are third parties and that the transfer has nothing to do with evasion or avoidance?  Of course, this information will be used according to the provisions of the treaty as well."

It is relevant to observe that the French Tax Authorities, consistent with their written requests, talk in terms of Mr Piranda transferring his shares to third party investors.

31.      On the basis of this information from the French Tax Authorities, the Deputy Comptroller wrote to State Street on 4^th April, 2012 enclosing a further draft notice in relation to each of the six limited partnerships, on this occasion asking for the names and addresses of each of the limited partners.  State Street responded on 17^th April, 2012 in this way to what it was now referring to as the APEF5 funds:-

"As advised previously we can confirm that to the best of our knowledge and belief Mr Jean-Paul Piranda is not an investor in the APEF5 funds.

Are you able to release any further information regarding Mr Piranda that may allow us to connect him to the APEF5 funds and to allow us to assist with this request?"

32.      Having undertaken a search with the Jersey Financial Services Commission in relation to the limited partnerships (which revealed only basic formal information) the Deputy Comptroller responded to State Street on 1^st May, 2012:-

"I appreciate your cooperation in confirming that Mr Piranda has no direct connection with the APEF5 partnerships, information that was passed to the French Tax Authority.  I subsequently received a follow-up request from the French, as described in my letter of 4 April 2012, expressing their desire to have assurance that when Mr Piranda transferred the shares he held in his family group Frial to Glacies Holding SAS in 2008, he did so to third party investors.

By way of background, Glacies Holding SAS is held 51.8% by the company Frozen Holding SA, domiciled in Luxembourg.  It has been ascertained by the French that Frozen Holding SA is owned by the six partnerships that are the subject of this information request.

With this in mind, the French have requested the identity of the partners of the partnerships, to ensure that they are indeed third parties and that the transfer by Mr Piranda was not for the purpose of tax evasion or avoidance.  The French have given me assurance that this information will be used only in accordance with the provisions of the treaty.

I should be grateful if you would now let me know whether you wish to proceed through a formal Notice under Article 3."

33.      At the request of State Street formal notices were issued by the Deputy Comptroller on the 3^rd May, 2012 seeking the identity of the partners. On 23^rd May, 2012 APEF (taking over the correspondence from State Street) responded to the notices pointing out the requirement for any information requested to be "foreseeably relevant" to the administration and enforcement of French tax laws and having confirmed again that Mr Piranda had no interest in any of the partnerships went on to say this:-

"Nevertheless, after verification, there could be some confusion in the French tax authorities' request between Mr Jean-Paul Piranda and Mr Jean-Marie Piranda.  Indeed, the latter is chairman of the Frial group and holds a stake in Glacies Holding.

However, Mr Jean-Marie Piranda:

-          is not a Partner of APEF5 Izar CI L.P., APEF5 Jabbah CI L.P., APEF5 Kuma CI L.P., APEF5 Pulsar CI L.P., APEF5 Pixy US L.P. or APEF5 Syma US L.P;

-          has not invested in these funds;

-          has not received revenue or assets from said funds; and

-          does not hold any stake in the APEF5 funds.

We are naturally at your disposal to answer any request that may directly concern Mr Jean-Paul Piranda or any other person named, provided that the French tax authorities give the reasons for considering that the information concerning this person is "foreseeably relevant" to the audit of Mr Jean-Paul Piranda's position with regard to solidarity tax on wealth."

34.      On 28^th May, 2012, Mr Colin Powell, an adviser on international affairs in the Chief Minister's Department, inquired of the French Tax Authorities as to whether they were satisfied with Jersey's responses on information requests.  They responded on the 30^th May, 2012 in this way:-

"Following our last meeting in Paris, we have noticed an improvement in the process of our requests.  Thank you.  Nevertheless, two main points remain: the disclosure of the shareholders and [    ].

For instance, regarding the requests No59984 to 59989 [the references for the subjects of this appeal] we are still hoping to obtain the names of the shareholders, and concerning the request no [    ]"

35.      Mr Powell took this up with the Deputy Comptroller, who e-mailed him on 30^th May, 2012 under the heading "Responses to French "fishing expeditions"" and saying this:-

"It is clear that the French are not going to receive any easy response.  I attach in both cases the response from the service provider, both of which charge the French tax authority with conducting a fishing expedition.

The grounds in both cases are similar:

-          In the case of Mr Piranda, the management company holds that the names and addresses of the partners of the six limited partnerships are not foreseeably relevant to the investigation of Mr Piranda.  An interesting point is made that the subject of the French request may not even be the right man!

-          [    ]

I am inclined to thank the two respondents for their replies and to say that I shall provide the information that they have supplied, limited though it is, to the French and see how they wish to proceed.

To the French I propose sending the two letters and asking whether they really wish to pursue these lines of enquiry.  I think I need to make clear that the information that they have requested is clearly not going to be easy to obtain, as it goes beyond what is generally perceived to be foreseeably relevant, hence they need to be prepared to bear the costs should the notices go to appeal.

I should also point out that there seems to be confusion as to who even is the subject of the Piranda enquiry!"

36.      The Deputy Comptroller replied to APEF on 12^th June, 2012 noting the possibility of confusion between Mr Jean-Paul Piranda and Mr Jean-Marie Piranda, upon which he was seeking clarification from the French Tax Authorities, but stating that he was:-

"... confident that, unless it can be shown that the taxpayer who is the subject of their enquiry into wealth tax never transferred shares held by him in the family group Frial into Glacies Holding SAS, they are unlikely to wish to leave the matter unexplored."

He went on to say:-

"....  If you are able to confirm that there has been a confusion and no such transfer took place from Mr Jean-Paul Piranda, then this would call into question the foreseeable relevance of the information requested to wealth tax payable by Mr Jean-Paul Piranda.  In the absence of such new information, I feel obligated to pursue the partner information requested."

37.      APEF responded on 15^th June, 2012:-

"We confirm that, according to this company's records (which include the share sale agreement relating to Groupe Frial dated 25 January 2008) no transfer was made by Mr Jean-Paul Piranda of any holding in Groupe Frial to Glacies Holdings.

Mr Jean-Marie Piranda was, however, a party to that agreement."

The letter noted that the notices issued on the 3^rd May, 2012 had been suspended by the Deputy Comptroller.

38.      On 26^th June, 2012, the Deputy Comptroller wrote to the French Tax Authorities confirming that there had been no transfer made by Mr Jean-Paul Piranda but that APEF had revealed that:-

"Mr Jean-Marie Piranda is chairman of the Frial Groupe, holds a stake in Glacies Holding and was a party to the share sale agreement of 25th January 2008."

It was not clear to him whether Mr Jean-Paul Piranda and Mr Jean-Marie Piranda were two related individuals, two completely unconnected individuals or whether there had been a typographical error, but it called into question that the information requested was foreseeably relevant to the subject of their investigation.

39.      It was not until 18^th February, 2013, nearly eight months later, that the French Tax Authorities came back to the Deputy Comptroller as follows:-

"I refer to your letter of 26 June 2012 and I wish to apologize for the delay in providing a reply.  I can now confirm the taxpayer's name is Jean-Marie PIRANDA.  You will find amended requests enclosed to this letter."

40.      In these new requests, the French Tax Authorities reverted to the information requested in their requests of 2^nd September, 2011; in particular, there was no request for the identity of the partners of the limited partnerships as had been contained in the notice of the 3^rd May, 2012.

41.      On 15^th May, 2013, the Deputy Comptroller wrote to APEF, withdrawing his notices of 3^rd May, 2012 and enclosing fresh notices.  He explained in his letter:-

"The French competent authority has explained to me previously that it wishes to establish that the transfer of some or all of Mr [Jean-Marie] Piranda's holding in Groupe Frial to Glacies Holdings has nothing to do with tax evasion or avoidance.  The French Tax Authority suspects that Mr Jean-Marie Piranda has a beneficial interest in the limited partnerships.  To the extent that there is, or may be, some connection between Mr Jean-Marie Piranda and the funds, it seems reasonable to me to respond to the French requests."

42.      The tax information required in the new notices was limited to the following:-

"a.       Is any activity carried out by Mr Jean-Marie Piranda in the Limited partnership?  If so, what kind of activity?

b.        Is there a current account opened on behalf of Mr Jean-Marie Piranda in the limited partnership?  If so, what was the balance on the account at 1st January 2011?

c.        To the extent that the partnership is connected with Mr Jean-Marie Piranda whether directly or indirectly through a related or connected party, please provide the partnership declaration.

d.        to the extent that the partnership is connected with Mr Jean-Marie Piranda, provide the turnover for the limited partnership for periods commencing on or after 11th October 2010.

e.        to the extent that the partnership is connected with Mr Jean-Marie Piranda, whether directly or indirectly through a related or connected party, please provide details of the assets of the limited partnership as at 1st January 2011."

43.      APEF responded on 7^th June, 2013 confirming that Mr Jean-Marie Piranda:-

"- is not a limited partner in [the six named limited partnerships].

has not invested in these funds;

has not received income or assets from said funds;

has no account opened on his behalf in said funds;

does not carry out any kind of activity in the above-mentioned funds."

44.      Because Mr Piranda was not connected to the limited partnerships, APEF was not required to provide information in relation to those limited partnerships but it raised concerns in its letter as to whether that information was "foreseeably relevant".  The letter also pointed out the obligation of the French Tax Authorities to only request information that it was unable to obtain by other means.  The information in relation to the stake of Mr Jean-Marie Piranda was, it said, public information.  It was concerned that a practice of "fishing" for information was developing, which was prohibited both by the OECD and the European Union.  The letter went on to say, however:-

"Nevertheless, should you find it necessary, we would be minded to agree that an agent or representative appointed by the Tax Authorities, could, at our own expense, come in our premises in Jersey in order to verify the accuracy of the information provided."

We were told by Mr Harvey-Hills that it was intended that this agent would be independent.

45.      The information given by APEF in response to these latest notices was sent by the Deputy Comptroller to the French Tax Authorities on 19^th June, 2013. A meeting then took place in Paris on 25^th June, 2013 attended by Mr Powell, the Deputy Comptroller and representatives of the French Tax Authorities and the French Ministry of Finance.  It was held at the request of the Jersey authorities at the OECD in Paris in the wings of the Peer Review Group meeting on the same day.  The notes of that meeting provide:

"The French competent authority remained insistent that a number of requests remained open where partial information had been provided, but where the third party information holders had refrained from supplying complete information on the basis that the outstanding information was "not foreseeably relevant" (as an extreme example, information on the beneficial owners of a trust company, where what is really relevant for French purposes is identifying the beneficiaries of the trust).

As a consequence, a number of cases where Jersey had provided information that it had hoped sufficient to answer the principal French queries (without the need to have recourse to legal action against the information holders) were still held by the French to require answering.

Thirteen cases were deemed open:

Mr P: On these cases, the French had originally supplied the taxpayer's name incorrectly.  There was an 8 month delay between our raising this crucial point on 26th June 2012 and France's confirmation of the correct name on 19th February 2013.  I pointed out that Jersey had answered the subsequently revised requests (issued with the correct taxpayer name), but these contained no questions on general beneficial ownership.  Patricia Selliere reiterated her demand for beneficial ownership information.  A new written request will be necessary (and has been received)".

There was no reference in these minutes to the possibility of Jersey being black listed.

46.      On 18^th July, 2013, the Deputy Comptroller wrote to the French Tax Authorities noting that if the beneficial ownership of the partnerships was to be required he proposed re-issuing his notices of May 2012 under the corrected name.  The French tax authority responded on 27^th August, 2013, confirming that they sought the names and addresses of the partners of the partnerships. 

On 28^th August, 2013, there was an announcement in the official journal of the French Republic of the intention by the French Tax Authorities to place Jersey on a list of uncooperative jurisdictions for the purposes of Article 238-0 A of the Code Général des Impôts.  It is our understanding that this arose out of what the French Tax Authorities perceived as the failure of the Jersey Tax Authorities to provide tax information under the TIEA in relation to this and another case (since withdrawn by the French tax authorities).

47.      On 9^th September, 2013, the Comptroller issued the notices (which we will now refer to as "the 9^th September Notices") which are the subject of this appeal in respect of each of the limited partnerships saying this to APEF:-

"However, at a meeting recently held between the French and Jersey competent authorities it was clear that this did not satisfy the demands of the French competent authority, which considers the request unsatisfied and seeks that its request for information be met in its entirety.  I am therefore required to repeat my requests for the outstanding information."

The information requested was as follows:-

"a.       The names and addresses of the limited partners in each limited partnership and the extent of their participation in the limited partnership.

b.        The declaration of the partnership for each limited partnership.

c.        The turnover of each limited partnership from 11th October 2010 to 31st December 2010.

d.        Details of the nature and amount of the assets of each limited partnership on 1st January 2011."

48.      The notice of appeal by APEF was filed on 2^nd October 2013.

Evidence filed post the appeal

49.      Subsequent to the filing of the notice of appeal, APEF has filed a substantial body of evidence.  That evidence came in the form of affidavits from Julia Chapman, an English and Jersey solicitor and formerly European senior counsel for State Street and who now acts as an independent director on a number of companies administered in Jersey, including APEF, and from Arnaud Jean-Jacques Emmanuel Million, a French tax lawyer who is also a director of APEF. That evidence can be summarised as follows:-

(i)        The limited partnerships constitute a private equity fund ("the Fund") established in Jersey in 2006, which invests in different businesses in Europe.  It is an expert fund regulated by the Jersey Financial Services Commission.  It comprises a total of 54 investors domiciled in multiple jurisdictions, the vast majority of whom are institutional investors, such as other investment funds, funds of funds and pension funds.  The minimum subscription for investors was €15M, although that could be lowered at the discretion of APEF as general partner and for a few investors was lowered to €5m.  It is a closed ended Fund with a single closing which took place on 31^st March, 2006.  Since that date, no further units have been issued nor could they be.  No new investors have been admitted.  An investor can transfer units to another existing investor or to a third party who is not at that time an investor in the Fund.  However, such transfers can only take place with the consent of APEF as general partner.  In 2007 and 2008 (the time when the Groupe Frial transaction which involved Mr Piranda took place), there was only one transfer of units and that was simply from one particular vehicle owned by a well known financial institution to another vehicle owned by the same financial institution. The partnership register shows that no investor has ever transferred units to a new third party investor.

(ii)       APEF is based in Jersey where it has premises and employees.  Of its five directors, three are Jersey based.  The Fund holds significant interests in approximately ten trading businesses in Europe.  The acquisition value of those investments is in the region of €700M.  One such investment made by APEF concerns the Groupe Frial.

(iii)      Groupe Frial is a frozen food producer based in Bayeux in Normandy.  It is a substantial business founded in 1980 by the Esnée family.  In 2007, the family owners were looking to sell the business and were speaking to a number of potential bidders including the Fund. At this time its turnover was €220M and it had six hundred employees.  Ultimately, the Fund was the successful bidder and the transaction was completed on 27^th March 2008.

(iv)      Mr Jean-Marie Piranda has a technical degree in the dairy industry.  He spent seven years as a buyer in a large retail sector and then worked for four years as sales manager for frozen food products within a small family owned company.  He joined Groupe Frial in 1989 as mass market sales manager and became chief executive officer in 1992.  In 1989 Frial used to sell around 400 tons of frozen fish per year.  Today, the Groupe Frial sells approximately 30,000 tons of seafood and approximately 33,000 tons of ready meals per year. 

(v)       Prior to the acquisition, Groupe Frial was owned as to 82.4% by the founding Esnée family and 17.6% by key managers and executives.  Mr Piranda was one of the key managers and executives (not head of the Esnée family) and owned 13.25% of the shares in his own name and through a wholly owned company, SARL Jean-Marie Piranda. We will refer to it as one holding.

(vi)      The Fund was advised by the Paris office of a well-known US law firm and the acquisition followed a very standard method for this type of transaction.  In short, a new company was incorporated (and subsequently named Glacies Holding SAS) which purchased the shares in Groupe Frial so that it became 100% owner of the Groupe Frial.

(vii)     Post completion, Glacies Holding was owned as to 51.8% by a Luxembourg company, Frozen Holding SA, which was in turn owned by the Fund, and as to 44.30% by Mr Piranda and as to 3.9% by the remaining managers of Groupe Frial.  The total cost of the transaction was €183.9M and involved bank financing of €115.5M. 

(viii)    Mr Piranda made a contribution of €12.99M to the working capital of Glacies Holding, making an overall contribution which amounted to approximately 19.8%, in effect exchanging the major part of his shares in Groupe Frial (the balance being sold for full consideration) for a 44.3% holding of shares in Glacies Holding.  The reason for this proportionately larger holding was that Mr Piranda was to remain as chief executive officer of Groupe Frial and the Fund wished to ensure that he was suitably incentivised to improve the financial performance of Groupe Frial.  Convertible bonds issued by Glacies Holding to Frozen Holding contained a mechanism whereby, if certain levels of financial performance were not reached, they could be converted into equity, which would have the effect of increasing the interest of the Fund and diluting that of Mr Piranda.  In effect, this was a sliding scale.  The better the financial performance of Groupe Frial, the fewer the number of bonds that would be converted and the lower the dilution of Mr Piranda's interests would be.

50.      Appended to Mr Million's affidavit were copies (and in most cases translations) of the documentation entered into including the Protocole d'Accord (for the sale of the shares to the new company), the Protocole d'Investissement (for the participation of Mr Piranda and other managers in the ownership of the business), the Avenant au Protocole d'Investissement, the competition notification and the report of the Commissaires aux Comptes.

51.      Of particular significance is the following:-

(i)        The acquisition was the subject of approval by the French Competition Authorities, which involved a submission by the Paris office of S J Berwin to the French Ministry of Economy, Finance and Industry, giving a detailed description of the transaction.  That included information concerning the Fund, and in particular, the independence of the underlying investors to the Fund.  It was clear from that notification that Mr Piranda would hold 44.3% interest in Glacies Holding.  We were informed that if he had also been an investor in the Fund, this would have had to have been notified.

(ii)       The value of the shares in Groupe Frial contributed by Mr Piranda were referred to the Commissaires aux Comptes appointed by the President of the Tribunal de Commerce de Paris.  Following due diligence they concluded that the value of the shares being contributed were not over-valued and that the assets being transferred were at least equal to the nominal value of the shares to be issued in Glacies Holding in exchange.  Following the completion, Glacies Holding entered into a Traité d'Apport with Mr Piranda, which was an agreement in relation to the valuation to be given to the shares that Mr Piranda was to transfer and the shares they would receive in exchange, with values set in accordance with the report of the Commissaires aux Comptes.  The Traité d'Apport was registered with the French Tax Authorities on 22^nd May, 2008.

(iii)      The deeds resulting in the sale of shares are subject to stamp duty and were registered with the French Tax Authorities within one month.

52.      In effect Mr Piranda was allowed to keep his interest in Groupe Frial with the Fund limiting its acquisition to that of the Esnée family. Things were structured to incentivise Mr Piranda in his capacity as CEO of Groupe Frial (and other managers) and independent valuers ascertained and confirmed that the value of the shares in Groupe Frial he transferred to Glacies Holding were at least equal to the value of the shares in Glacies Holding he received in exchange. We will come to the significance of this evidence shortly.

Prohibition on notifying taxpayer

53.      In their e-mail of 30^th May, 2012 to Mr Powell, the French Tax Authorities said this:-

"Moreover, a new issue has been raised by Andrew Cousins: the notice to the taxpayer under investigation.  We cannot accept any disclosure to the taxpayers.  This procedure is not in line with our practices.  The request has to remain secret."

54.      One of the amendments to the Regulations made in October 2012 enabled the competent authority for Jersey pursuant to Regulation 3(7) to impose a requirement on issuing a third party notice that the third party shall not inform the taxpayer.  On issuing the notices on 15^th May, 2013, and 9^th September, 2013, the Deputy Comptroller required APEF not to inform Mr Piranda.  That prohibition was the subject of written representations from Mr Harvey-Hills to the Solicitor General on 18^th and 22^nd October, 2013 and the point was conceded.  Mr Piranda was informed of the notices and he has written a letter to Mr Harvey-Hills (to be passed on to the Court) stating that he has no interest in appealing the notices himself.  He set out his position as follows:-

"1.       The French tax authority has not approached me or requested from me any of the information set out within the Notice.

2.        As far as I am aware, I am not currently under any investigation or assessment for French wealth tax payable on 1 January 2012 or at all.

3.        I am not, nor have I ever been, a limited partner in any of the LPs, nor am I a shareholder in the Appellant.

4.        I have not made an investment in any of the LPs at any time, whether personally or through a structure in which I have a beneficial interest, or through a person connected to me.

5.        I have not received any income or assets from the LPs directly or indirectly, nor do I have any role in the LPs themselves.

6.        My role in Groupe Frial and my stake in Glacies Holding SAS is already known to the French tax authority.  I am not aware that there is anything else which I need to disclose to the French tax authority, but would of course be happy to disclose directly to them any further information that is relevant to my tax assessment if they want me to do so."

55.      The issue of the prohibition therefore falls away, but we would wish to make this observation.  The proforma used for making requests under the TIEA has under Part 3 a section headed "Request to refrain from notifying the taxpayer(s) involved (please indicate)" with "tick box" responses.  Regulations 3(4) and (6) are in the following terms:-

"(4)     Subject to paragraphs (6) and (8), the competent authority for Jersey shall, within the time required by paragraph (5) give to the taxpayer to whom a third party notice relates the following information -

(a)       a copy of the third party notice; and

(b)       a written summary of the reasons of the competent authority for Jersey for the giving of the notice.

(5)       ...

(6)       The competent authority for Jersey is not required to give to the taxpayer the information described in paragraph (4) if -

(a)       its disclosure would or might identify a person who has provided information that the competent authority for Jersey takes into account in deciding whether to give third party notice;

(b)       the competent authority for Jersey is satisfied that there are reasonable grounds for suspecting that the taxpayer has committed a relevant criminal offence; or

(c)       the competent authority for Jersey is satisfied that disclosure of information of that description would prejudice the assessment or collection of tax."

56.      We have not heard argument on the matter, but we question the use of a tick box approach to any of the matters set out in Regulation 3(6).

Duties of the competent authority in Jersey

57.      It is necessary first to consider the extent to which the amendment to Regulation 3(1) materially alters the duties of the decision maker. The Regulations as originally promulgated imposed a threshold before Regulation 3 applied, namely, whether the decision maker had reasonable grounds to believe the matters described in Regulation 3(1)(a) and (b) (see paragraph 13 above). If that threshold was passed the decision maker retained a discretion under Regulation 3(2) whether to require any person other than the taxpayer to provide documents or records that in the reasonable opinion of the decision maker may contain tax information.

58.      Under Regulation 3(1) as amended in October 2012 that threshold has been removed. Instead where the decision maker decides that it is "reasonable" to respond to a request, he may require a third party to provide tax information that he "reasonably" requires for that purpose. There remains a threshold in that as set out in paragraph 15 above "request" is now defined, so that the decision maker's jurisdiction under Regulation 3(1) only arises if the request is made under the TIEA and complies with the requirements the TIEA. As before the decision maker is still required to make a rational assessment of the material before him.  Whether, following that rational assessment, the decision to respond to a request is "reasonable" and the information "reasonably" required is an objective test, exposing the Deputy Comptroller's decision to judicial scrutiny.

59.      Mr Harvey-Hills dealt extensively in his skeleton argument and oral submissions with the duties of the Deputy Comptroller, the rights of APEF under the ECHR and the general law to be protected from arbitrary and disproportionate interference with its rights and the perceived lack of safe-guards against abuse of powers reposed in the Deputy Comptroller and the French Tax Authorities. We do not think it is necessary or even appropriate to respond to those contentions because the Court of Appeal has opined authoritatively on them, albeit in the context of the original Regulations, but the changes to the Regulations do not detract from that authoritative guidance as in essence the role of the Deputy Comptroller remains the same; neither counsel sought to suggest otherwise.

60.      The Court of Appeal in Larsen considered as a preliminary issue how far beyond the assessment of the material contained in the request the Deputy Comptroller (in that case the Comptroller) should go. It referred to Acturus Properties and 47 others-v-Attorney General [2001] JLR 43 and In re Kaplan [2009] JLR 88, which it said emphasised that the decision maker must consider whether there are reasonable grounds for the belief required but it was not "for a decision-maker to question the correctness of the material provided to it from outside the jurisdiction, as long as it is properly evaluated after, it may be, some probing for the purposes of clarification" (its emphasis).

61.      Transposing that to Regulation 3(1) as amended the decision maker must consider whether it is reasonable to respond to a request (made under and which complies with the TIEA) but it is not for him to question the correctness of the material provided, as long as it is properly evaluated after, it may be, some probing for the purpose of clarification.

62.      Having considered whether the default position indicated in these two cases was to be modified by public law principles of the fairness or by the ECHR, the Court of Appeal said this at paragraph 30:-

"It is well established that fair procedures can (unusually) supplement any legislative scheme (primary or delegated) insofar as they do not frustrate the purpose of the scheme.  R v Birmingham CC ex p Ferrero Ltd [1931] 1 All ER 530 at 541F-542G.  Bank Mellat No. 2 v HM Treasury [2013] UKSC para 36.  While the 2008 Regulations contain no express provision for representations to be made by the person of whom the requirement is made, as to why the request made does not justify a notice, Regulation 3(4), as noted, provides for a "reasonable opportunity" to that person to provide to the Comptroller the document or record concerned without the need for a notice.  Reasonableness must, in our view, require not only making available sufficient time for such provision but also sufficient explanation as to why the information is required.  There is nothing to prevent the person, given that opportunity, then to exploit it by making a case against such provision, which the Comptroller would be obliged to take into account before issuing a notice.  Subject only to the circumstances set out in Regulation 3(6) which prevent the Comptroller from disclosing certain matters to the person from whom the information is sought [specifically post-notice, but which must sensibly apply pre-notice too], we were told by Advocate Kelleher for the Comptroller that there is no practical reason why the Comptroller should not inform the person of the substance of the Request.

31.      Elementary fairness does seem to us, prima facie, to require the Comptroller to give the person the chance to make representations so as to avoid, it may be, entering into the terrain of notices and the possibility of penal sanctions for non-compliance therewith Regulation 3. (As to which see Regulation 15(2).)"

63.      The repeal of Regulation 3(4) (which simply gave the third party an opportunity to provide the information, which the Comptroller had already decided to request, without the need of a formal notice) does not in our view detract from this finding as to procedural fairness, the purpose of which is to give the third party the chance to make representations before a formal notice is issued.

64.      In Larsen, the appellants made a number of criticisms of the role of the Comptroller, quoting from paragraph 168:-

"168.   It is further argued by the Appellants that:-

(i)        the Comptroller had failed to approach his task with the requisite degree of rigour;

(ii)       he had in effect, abrogated his quasi-judicial, gate-keeper function in favour of adopting uncritically what the NTA asserted;

(iii)      that in doing so he had failed to hold the proper balance between competing interests of which the court spoke in the AZP case;

(iv)      he had failed to give sufficient weight to the protection of Jersey nationals and taxpayers."

65.      The Court of Appeal responded to those criticisms (which were echoed in the submissions before us) in this way:-

"169.   In our view this argument implicitly sets the bar too high and is unjustifiably critical of the Comptroller.  Article 3 of the J/N TIEA obliges a requested party to provide the requisite information "to the extent allowable under its domestic laws".  In the case of Jersey the "extent allowable" is that provided in the 2008 Regulations.  The relevant safe-guards have, accordingly, been set by the Jersey legislature and, so far, as relevant to present issues, are for the most part given expression in the terms of Regulation 3.

170.    As is plain from the terms of that Regulation, it is recognised that for the JN/TIEA process to work, some margin of appreciation has, inevitably, to be allowed to the Comptroller in deciding whether it is right to accede to a request for assistance: hence deployment of the words "belief" and "opinion".  While it is certainly right that any request should be carefully considered by the Comptroller with the criteria of Regulation 3 in mind, it is not for him, or for this Court, to devise additional hurdles for a requesting party to jump before any request can be met.  The presumption of regularity (R -v- IRC ex p Rossminster [1980] AC 952 per Lord Diplock at p.100) at least applies to how he has discharged his duty, although it does not dilute the duty itself."

66.      The Court of Appeal then set out at paragraph 171 the principles applicable to the question whether the Regulation 3 paragraph (1) threshold is satisfied, which we adapt for the purpose of setting out the principles applicable to the exercise of the Deputy Comptroller's duties under the revised wording of Regulation 3(1):-

(i)        The Deputy Comptroller is entitled and bound to have regard to the totality of the information made available to him and its sources or lack of sources;

(ii)       There is no requirement that such information must be verified by affidavit or otherwise take any particular form;

(iii)      For the purposes of deciding whether to act on a request the Deputy Comptroller is at liberty to ask the requesting state authorities for clarification or further information but he is under no obligation to do so; nor is he under any obligation to require the production of evidence in support of facts of which he is informed in order to verify them for himself;

(iv)      Where the Comptroller is faced with conflicting assertions as between the requesting authority and those affected by the request, it is not for him to reach any final conclusion on where the truth lies; his role is not to act as final adjudicator on these issues which may or may not in the fullness of time fall for adjudication by courts but simply to decide, having regard to the material before him, whether it is reasonable to respond to the request.

The appeal

67.      Having considered both precedent and the ECHR the Court of Appeal envisaged the following procedures to be consistent with the Regulations and legal principle:-

"54.    ... In the normal course of events, the Comptroller will have given the opportunity for the production of the documents and/or representations to have been made why the documents should not be produced, prior to the issue of the Notice.  If the documents are not provided and the Comptroller is not persuaded by the representations the Comptroller will then issue his notice.  At that point the putative Appellant/s will have to decide whether or not to appeal.  If an appeal is instituted the next step will be for the Comptroller to swear an affidavit.  The Royal Court should then conduct a case management hearing.  We recommend that the court should, absent truly exceptional circumstances, discourage any attempt for the appeal to be turned into a trial, with full deployment of lay or expert witnesses, whether testifying orally or on affidavit.  The court's function, when hearing the appeal, will be to concentrate on whether the material in front of the Comptroller at the time he issued the Notice provided him with reasonable grounds for his belief, and not to be drawn, as happened in the instant case, albeit given the novelty of the situation understandably, into permitting adduction of an extensive volume of such evidence. (See The Acts of Court of 8th March 2012, 22nd October 2012, 15th November 2012, 16th May 20134).  Any affidavit evidence from the Appellant should be concise and only entertained if it purports to contain some truly dispositive point.  Cross-examination should only be permitted if the appeal (recollecting the limited nature of the issue involved) truly turns on some point that can only be resolved by such method.  It must be borne in mind by the court that the Comptroller has issued his Notice as part of an investigation and that he himself is not obliged to conduct any sort of mini-trial.  Neither, in our view, should a court be tempted down that slippery path."

68.      Although this procedural guidance was issued only shortly before the hearing, we are governed by it. The Commissioner had already given the parties leave to file expert evidence, although nothing in fact turned on it. Applications by APEF to cross examine the Deputy Comptroller had been refused by the Commissioner prior to the hearing and the extensive evidence filed by APEF was entertained by us partly because it had not been given an opportunity to make representations prior to the issue of the 9^th September Notices as recommended by the Court of Appeal and partly because it was in our view dispositive.  

Grounds of appeal

69.      The grounds of appeal were as follows:-

(i)        The Deputy Comptroller did not have the power to require APEF to produce some or all of the documents specified in the notice (essentially that the information sought post-dated the entry into force of the TIEA) - this ground was not pursued.

(ii)       That the Deputy Comptroller had failed to comply with Regulation 3 of the Regulations in that (i) there were no reasonable grounds for believing that Mr Piranda had failed to comply with French tax laws, (ii) there were no reasonable grounds for believing that any of the documents required to be produced were relevant to a tax liability of Mr Piranda, (iii) the notice was too wide.

(iii)      The request does not comply with the terms of the TIEA in that:-

(a)       The request was not made in respect of information that was foreseeably relevant:

(b)       The request did not comply with Article 5(5) of the TIEA in that it was not "formulated with the greatest detail possible".

Discussion and decision

70.      The key ground upon which APEF relied was that the tax information sought was not "foreseeably relevant" to the tax affairs of Mr Jean-Marie Piranda, the taxpayer identified in the 9^th September Notices. The essential point is this.  The request from the French Tax Authorities was firmly based on the assertion that Mr Piranda had transferred his shares in Groupe Frial in effect to third parties (the limited partnerships) without apparently receiving value, leading to the understandable suspicion that he had an interest in those entities. 

71.      Whilst we appreciate that the evidence filed by APEF following the appeal has not been tested, and as Mr Kelleher pointed out the Deputy Comptroller is in no position himself to test it, what it shows, convincingly in our view, is that rather than transfer his shares in Groupe Frial for no value, he exchanged his shares for a substantial holding in Glacies Holding for full value as certified by the Commissaires aux Comptes and as set out in the Traité d'Apport which was registered with the French Tax Authorities on 22^nd May, 2008. It was not a transfer for no value but an exchange for full value.

72.      Furthermore, the limited partnerships transpire to be a very substantial private equity fund regulated in Jersey which was closed to new investors in 2006, well before the process for the bidding for Groupe Frial commenced.  Yet further, these transactions had been fully disclosed to the authorities in France. 

73.      This information, in our view, removes in its entirety the foundation upon which the French Tax Authorities had, on the face of their request, based their suspicion and given as the reason for the request.

74.      There is nothing in the transaction documents as presented to us and as filed with the various French authorities that would, in our view, lead anyone to suspect that Mr Piranda was, secretly, one of the investors in the Fund.  Added to that is the point made by both experts on French law that his holding in Glacies Holding would in any event be exempt from wealth tax whereas an interest as an investor in the Fund would not be. They agreed he would have no interest from a tax perspective in having a hidden interest in the Fund.

75.      On the face of this evidence, it could no longer be said that the information sought was "tax information" as defined namely information that was "foreseeably relevant" to the administration and enforcement of any wealth tax that may be owed by Mr Piranda. That being the case, the requirements of Regulation 3(1) are not met.  What you are left with is a speculative request that has no apparent nexus to any investigation into the tax affairs of Mr Piranda - an impermissible fishing expedition.

76.      It seems to us that there are two possibilities at play here:-

(i)        Either those currently working for the French Tax Authorities are aware of the information in relation to the transaction (and Mr Piranda's shareholding) as filed with the French Tax and Competition Authorities in 2008, in which event the requests they have submitted to the Deputy Comptroller are misleading and in breach of their obligation under Article 5 of the TIEA to formulate the requests with "the greatest detail possible" or

(ii)       Those currently working for the French Tax Authorities are not so aware, in which event they are in breach of their obligations under Article 5(5)(i) of the TIEA to pursue all means available in their own territory to obtain information, in that this information is available in France, much within the public domain and accessible on the internet. 

77.      We assume that the French Tax Authorities would not submit a misleading request and that we are therefore in the territory of the second possibility, namely that for whatever reason, those currently working for the French Tax Authorities are simply unaware of the true nature of the transaction in 2008 and that Mr Piranda exchanged his shares for full value, not transferred them for no value.

78.      The Deputy Comptroller (and this Court) can only work on the information provided by the French Tax Authorities and now by APEF and we acknowledge that there may be factors in the investigation of the affairs of Mr Piranda of which we are unaware.  In his second affidavit, sworn on 15^th November 2013, the Deputy Comptroller said this:-

"5.       In a conversation last week with a representative of the French Competent Authority they provided my office with two further pieces of relevant information.  Firstly, that their interest in Mr Piranda arises because they have discovered that he has an unexplained source of income.  They have been unable to determine its source, but their investigations took them to Luxembourg, as explained above, and then to Jersey.  Secondly, that they have obtained certain information from Luxembourg which is relevant to their investigations, but they are unable to disclose that to me because of the confidentiality obligations imposed on the provision of that information.  The Court will note that the TIEA between Jersey and France also has confidentiality obligations in Article 8."

79.      This information as to an unexplained source of income was not contained in any of the requests submitted by the French Tax Authorities and was not therefore known to the Deputy Comptroller at the time that any of the notices were issued. It was known that their investigations as to the ownership of Frozen Holding had taken them to Luxembourg but on the face of it, there would appear to be no nexus between this unexplained source of income and the Fund.

80.      Curiously an email from the French Tax Authorities to the Deputy Comptroller of the 5^th November 2013, intended to give an additional explanation in respect of this case, made no reference to this unexplained source of income. It also refers to Glacies Holding being under examination (as opposed to Mr Piranda).

81.      Mr Kelleher did not seek to argue with any force that the 9^th September Notices should stand in the face of this evidence, tacitly accepting its impact.  He submitted that it placed the Deputy Comptroller in an impossible position, in that he is now engaged, he said, in an adversarial process.  We accept that as the Court of Appeal in Larsen made clear at paragraph 171(iv), it is not for the Deputy Comptroller to reach any final conclusion on where the truth lies, or to act as a final adjudicator on any of these issues.  In our opinion, it was open to the Deputy Comptroller to either suspend the notices (as he has done before when the issue of the correct name of the taxpayer was raised) or withdraw the notices, whilst he reverted to the French Tax Authorities for their response to the evidence filed. 

82.      Mr Kelleher was also concerned that if this appeal was allowed to succeed on the basis of the evidence filed by APEF, it would open the door to third parties who received such notices in the future to file substantial evidence with the Court post an appeal in order to displace the decisions of the Deputy Comptroller.

83.      We do not think that is likely.  As the Court of Appeal in Larsen makes clear at paragraph 54, affidavits should only be entertained by the Court if they contain some "truly dispositive point".  Furthermore, the procedure recommended by the Court of Appeal of giving third parties the chance to make representations before the notices are issued should bring to light dispositive evidence of the kind we have here.

84.      That procedural recommendation by the Court of Appeal was made well after the Deputy Comptroller had issued the 9^th September Notices and we do not therefore criticise the Deputy Comptroller for failing to comply with it.  The fact of the matter is that these notices were issued without any warning some three months after APEC had complied with the notices issued on the 15^th May 2013, which had not sought information as to the partners and which were complied with.  APEF could have been forgiven for thinking that the matter was closed with its response to the May notices.  We have no reason to suppose that given an opportunity to make representations on the disclosure as to the partners sought in the 9^th September Notices, APEF would not have done so.

85.      For our part, whilst we accept that as per the Court of Appeal in Larsen (paragraph 54) our task was to concentrate on the material before the Deputy Comptroller when he made his decision to issue the 9^th September Notices, we simply could not ignore the evidence filed by APEF, which on its face wholly undermined the very foundations upon which the requests had been made.  In a sense, the Court had no option but to set the notices aside, leaving it open, of course, for the Deputy Comptroller to revert to the French Tax Authorities and for the matter to be reviewed and re-assessed. There is nothing to prevent further requests being submitted by the French Tax Authorities, assuming of course that they comply with the TIEA, although we would emphasise the importance of the requirement in Article 5(5) of the TIEA for the request for information to be formulated "with the greatest detail possible".

86.      Turning to the material that was actually before the Deputy Comptroller when he decided to issue the 9^th September Notices (and thus ignoring the evidence subsequently filed by APEF), we agree with Mr Kelleher that the information sought by the French Tax Authorities was on that basis foreseeably relevant to the administration or enforcement of French tax laws in relation to Mr Piranda.  Quoting from paragraphs 136-139 of his skeleton argument:-

"136.   The information received from the FTA was as follows:

136.1   the FTA sought information in relation to a French taxpayer, Jean-Marie Piranda, who was under examination by the FTA regarding wealth tax owed on 1/1/11;

136.2   French wealth tax is payable by a French taxpayer on his worldwide assets;

136.3   Mr Piranda was the head of a French trading company called Frial which produces frozen goods;

136.4   he was a shareholder in that company;

136.5   in 2008 he transferred his shares in Frial to Glacies Holdings Ltd. a French company, which then becomes the owner of Frial;

136.6   Glacies is owned as to 51.8% by Frozen Holding SA, a Luxembourg company;

136.7   Frozen is owned by 6 LPs in Jersey (which the FTA named and provided addresses for) (this was based on information obtained by the FTA from the Luxembourg competent authority);

136.8   the FTA were investigating why Mr Piranda would have transferred valuable shares to a third party entity and what he may have got in return; they wished to investigate whether Mr Piranda held a stake in one or more of the LPs, directly or indirectly, and whether the LPs were merely 'empty shells'; they were investigating possible tax avoidance and evasion; and

136.9   the FTA confirmed it had used pursued all proportionate means of obtaining info within its own jurisdiction.

Publicly available information

137.    The information a limited partnership is required to file under Jersey law is itself very limited.  The information obtained from the JFSC on behalf of the Comptroller is appended to the Deputy Comptroller's affidavit.  It comprises (in relation to the 4 Jersey registered LPs: certificates of registration of the declarations, the declarations (which identify the name and address of the LP and the GP and the term of the LP) and a receipt for the annual fee.

Information received from (or on behalf of) the Appellant

138.    The information received from (or on behalf of) the Appellant was as follows:

138.1   the request concerned a sale in 2008;

138.2   there was a share sale agreement dated 25/1/08 and Jean-Marie Piranda was party to that agreement;

138.3   Jean-Marie Piranda is a shareholder in Glacies (though the extent of his shareholding was not indicated);

138.4   Jean-Marie Piranda was not a partner and had not invested funds in the LPs, nor had he received any revenue or assets from them; he played no role in the LPs; and

139.    Over and above that information (set out above) the Comptroller was in receipt of a request from the FTA which conformed to the requirements of the TIEA."

87.      We agree with this assessment and that in the light of the material then before the Deputy Comptroller, it was reasonable for him to respond to the requests.  As Mr Kelleher put it in paragraph 140 of his skeleton:-

"140.   ... The FTA are investigating a named French taxpayer who they asserted had dispossessed himself of shares in one trading entity which were transferred to another entity, the ultimate beneficial owner of which was six offshore LPs.  The information sought was foreseeably relevant to the assessment etc. of French wealth tax: the FTA had confirmed wealth tax is assessed on worldwide assets; if the taxpayer holds some form of interest in the LPs he is prima facie susceptible to that tax.  Although the Comptroller was in receipt of some conflicting information, that conflicting information did not address all of the possibilities and the Comptroller was not provided with any primary evidence to back it up.  He is not in a position to adjudicate about the correctness or completeness of that information or the actual value it may have to the FTA in its investigation."

88.      Mr Harvey-Hills pointed to the Deputy Comptroller's e-mail of 30^th May, 2012 to Mr Powell which he had headed "Responses to French "fishing expeditions"" and in particular the penultimate paragraph (as set out in paragraph 35 above) which suggested that the Deputy Comptroller did not himself believe that the information he was seeking in the notices he had just issued was foreseeably relevant. We think this e-mail was intended to constitute confidential advice from the Deputy Comptroller to Mr Powell in his capacity as an adviser on foreign relations as to the difficulties that the French Tax Authorities were likely to encounter in respect of this (and another) request.  It does not constitute some kind of admission on his part that the information he had required APEF to provide in this particular case was not foreseeably relevant.

89.      A concern was raised by Mr Harvey-Hills as to whether the Deputy Comptroller had been politically motivated in his decision to issue the 9^th September Notices by the threat announced by the French Tax Authorities on 28th August, 2013 to blacklist Jersey.  In his affidavit dated 17^th October, 2013, the Deputy Comptroller categorically refutes that suggestion.  He says he had no knowledge of any intention by the French Tax Authorities to do this prior to the announcement on 28^th August, 2013, by which time his decision had been made, although not implemented. 

90.      We do not know enough about the blacklisting process and the reasons for it, but if it did relate to the TIEA, it does seem surprising that this announcement should have been made without any prior notice to the Jersey tax authorities, bearing in mind the obligation under Article 11 of the TIEA for the competent authorities in both jurisdictions to endeavour to resolve matters by mutual agreement. To the extent that this case played a part in the process, then we have gone through the history in some detail, as set out above, and it is plain to see that the Jersey Tax Authorities responded promptly to and constructively with the French Tax Authorities at all times.

91.      The Deputy Comptroller had determined to request the identity of the partners as long ago as April 2012 but this was not advanced partly because of the eight month delay on the part of the French Tax Authorities in resolving the confusion over the taxpayer's name and by their then submitting new requests on the 18^th February, 2013 which inexplicably did not ask for the identity of the partners.

92.      The possibility of the Deputy Comptroller being improperly motivated by political considerations was only raised as a concern but not pursued either in the skeleton argument or the oral submissions of Mr Harvey-Hills and we have no reason to doubt the Deputy Comptroller's evidence on oath that it played no part in his decision.

93.      We turn finally to the submission by Mr Harvey-Hills that the information sought in 9^th September Notices was excessive and disproportionate.  The information sought of each partnership was as follows:-

"a.       The names and addresses of the limited partners in each limited partnership and the extent of their participation in the limited partnership.

b.        The declaration of the partnership for each limited partnership.

c.        The turnover of each limited partnership from 11th October 2010 to 31st December 2010.

d.        Details of the nature and amount of the assets of each limited partnership on 1st January 2011."

94.      Mr Harvey-Hills drew our attention to examples given in the Commentary to the Model Tax Convention of requests which are and which are not regarded as permissible.  A permissible example was:-

"e)      The tax authorities of State A conduct a tax investigation into the affairs of Mr. X.  Based on this investigation the tax authorities have indications that Mr. X holds one or several undeclared bank accounts with Bank B in State B.  However, State A has experienced that, in order to avoid detection, it is not unlikely that the bank accounts may be held in the name of relatives of the beneficial owner.  State A therefore requests information on all accounts with Bank B of which Mr. X is the beneficial owner and all accounts held in the names of his spouse E and his children K and L."

It would be permissible on the basis of this example, Mr Harvey-Hills said, for the Deputy Comptroller to ask APEF if Mr Piranda or any of his named relatives were a partner in any of the limited liability partnerships.

95.      Two impermissible examples were:

"a)      Bank B is a bank established in State B.  State A taxes its residents on the basis of their worldwide income.  The competent authority of State A requests that the competent authority of State B provide the names, date and place of birth, and account balances (including information on any financial assets held in such accounts) of residents of State A that have an account with, hold signatory authority over, or a beneficial interest in an account with Bank B in State B.  The request states that Bank B is known to have a large group of foreign account holders but does not contain any additional information.

b)        Company B is a company established in State B.  State A requests the names of all shareholders in Company B resident of State A and information on all dividend payments made to such shareholders.  The requesting State A points out that Company B has significant business activity in State A and is therefore likely to have shareholders resident of State A.  The request further states that it is well known that taxpayers often fail to disclose foreign source income or assets."

Here there is no investigation into the tax affairs of any given taxpayer, but a general trawl by State A to see if any come to light either as account holders or shareholders. Mr Harvey-Hills submitted that these examples were close to the request made by the Deputy Comptroller in the September 9^th Notices for the names of all the partners.  Having been told that Mr Piranda did not have an interest in any of the partnerships, the French Tax Authorities, through the Deputy Comptroller, were seeking to carry out a checking exercise against the names of all of the investors to verify the response. Such a checking exercise was impermissible, he said.

96.      We would make a number of points:-

(i)        The commentary on Article 26 of the Model Tax Convention states that the standard of "foreseeable relevance" is intended to provide for exchange of information in tax matters to "the widest possible extent", whilst at the same time clarifying that contracting states are not at liberty to engage in "fishing expeditions".

(ii)       At the time that the 9^th September Notices were issued, the Deputy Comptroller had no idea who lay behind the limited partnerships, let alone that they comprised a private equity fund with some 54 institutional investors.

(iii)      There is a nexus in that Mr Piranda had, on the case submitted by the French tax authorities in the requests, transferred shares effectively to these limited partnerships, apparently for no value.  The natural and indeed strong inference is that he must have some interest in them, if not directly then through others. 

97.      It is naïve to think that where assets have been transferred in the way suspected, partners or some of them may not be fronting for Mr Piranda.  Having been told that Mr Piranda is not a partner and plays no role in the limited liability partnerships and against that background it is in our view proportionate for those investigating to wish to know and for the Deputy Comptroller to ascertain whether any of the partnerships are empty shells fronting for Mr Piranda.  This, in our view, is not a fishing exercise. It has a nexus to the investigation. The information provided is, of course, confidential and can only be used for the purposes of Article 1 of the TIEA.

98.      Mr Harvey-Hills pointed to what he said were inconsistencies in the previous approach of the Deputy Comptroller and the Comptroller to this issue of proportionality.  In the first requests of 8^th June, 2011, the French tax authorities had asked for the names of all of the beneficial owners of what they thought were companies.  This was narrowed down, apparently on the advice of the Comptroller, presumably because it was thought that such a wide request was disproportionate. The second requests of 2^nd September, 2011 were limited to whether Mr Piranda was a partner, and if so, what his financial interest was, but even then the Deputy Comptroller was not prepared to request all of the information sought. On the receipt of a further explanation from the French Tax Authorities as to why they needed to know the names of all the partners, the Deputy Comptroller then decided to seek that information in the notices of 3^rd May, 2012. These notices were suspended and then superseded by the notices of the 15^th May, 2013 which did not ask for the identity of the partners. That was followed without warning by the 9^th September Notices, which did.

99.      We actually see nothing inconsistent in the conduct of the Deputy Comptroller or the Comptroller before him.  As the Court of Appeal said in Larsen some margin of appreciation has to be allowed to them in deciding whether it is reasonable to require the tax information requested by the French Tax Authorities. He and the Comptroller before him can be seen to have rationally assessed the material before them as the matter progressed and in due course in May 2012 the Deputy Comptroller decided it was reasonable to seek the identity of the partners. It was the French Tax Authorities who inexplicably did not seek this information in their amended requests of the 18^th February, 2013.

100.   By the time the 9^th September Notices came to be issued seeking the identity of the partners, the Deputy Comptroller had further information from APEF, in particular through its letter of 15^th June, 2012, that Mr Jean-Marie Piranda had been a party to the share sale agreement relating to Groupe Frial dated 25^th January, 2008.  With the benefit of hindsight, it is perhaps unfortunate that this letter did not go further to explain his role in that agreement, but as it was, this information tightened the nexus between the investigation of Mr Piranda's tax affairs and the limited partnerships.

Summary

101.   In summary, in the light of the evidence filed by APEF, the 9^th September Notices had to be set aside as that evidence undermined the whole foundation upon which the requests for information had been made by the French Tax Authorities, leading to the inevitable conclusion that on the face of that evidence, it could not be said that the information sought was foreseeably relevant to the administration and enforcement of French wealth tax in relation to Mr Piranda.

Authorities

Taxation (Exchange of Information with Third Countries) (Jersey) Regulations 2008.

Volaw Trust & Corporate Services Limited & Larsen-v-Comptroller of Taxes [2013] JCA 239.

C. Powell Recent International Tax Initiatives: Jersey and Guernsey Law Review October 2013.

Taxation (Implementation)(Jersey) Law 2004.

Model Tax Convention on Income and Capital.

Code Général des Impôts.

European Convention on Human Rights.

Acturus Properties and 47 Others-v-Attorney General [2001] JLR 43.

In re Kaplan [2009] JLR 88.