Taxation - reasons for lifting a prohibition on a notice
Before : |
M. J. Thompson, Commissioner |
Between |
JTC (Jersey) Limited and JTC Trustees Limited (in its capacity as trustee of the V Trust) |
Applicants |
And |
Jersey Competent Authority |
Respondent |
Advocate J. Harvey-Hills for the Applicants.
Advocate G. G. P. White for the Respondent.
judgment
the COMMISSIONER:
1. This judgment contains my reasons for lifting a prohibition on a notice dated 9 March 2023 ("the 2023 Notice") issued by the Jersey Competent Authority ("JCA") preventing JTC (Jersey) Limited ("JTC") and JTC Trustee Limited ("the Trustee" and together referred to as "the Applicants"), from informing B and C about the 2023 Notice or any information relating to the 2023 Notice.
2. The application was made under Regulation 3(7) of the Taxation (Exchange of Information with Third Countries) (Jersey) Regulations 2008 (As Amended) ("the 2008 Regulations"). Regulation 3(7) is set out later in this judgment, together with other relevant parts of the 2008 Regulations. The application was supported by an affidavit sworn by Ms Jodi Hill a director of JTC and the Trustee dated 23rd March 2023.
3. The Trustee is a regulated Jersey company providing trust company services. It is wholly owned by JTC. The Trustee is trustee of a trust called the V Trust ("the Trust"). The present application is brought by the Trustee as trustee of the Trust. JTC brings the application in its own capacity.
4. The Trust is an irrevocable discretionary law governed trust established by an Instrument of Trust dated 10 September 2007. The beneficiaries of the Trust are five siblings together with their respective spouses and issue. Two of the siblings are B and C who were referred to in the 2023 Notice.
5. The 2023 Notice was issued pursuant to Regulation 3 of the 2008 Regulations and Regulation 2 of the Taxation (Implementation Convention on Mutual Administrative Assistance in Tax Matters) (Jersey) Regulations 2014. The request came from the Competent Authority in Country A and the JCA was satisfied that the request had been made in conformity with the Convention on Mutual Administrative Assistance in Tax Matters as that convention applies between Country A and Jersey.
6. The 2023 Notice was not, however, the first notice issued by the JCA against JTC in respect of the Trust. On 19 January 2022, a notice was served seeking information in respect of the Trust, which included copies of financial statements and accounts, lists of investments made by the Trust, a list of assets held by the Trust and copies of tax returns filed ("the 2022 Notice"). The 2022 Notice contained a provision requiring JTC not to inform B and C of the 2022 Notice. This provision has not been challenged and remains in force. In summary, the 2022 Notice sought information about assets at the level of the Trust, whereas the 2023 Notice seeks information about companies owned by the Trust.
7. The 2022 Notice led to JTC on 26 January 2022 writing to the JCA. The letter raised the following points:
(i) that members of the beneficiary family were in active discussions with the Country A tax authorities;
(ii) that JTC were aware of similar notices in other JTC jurisdictions affecting the same parties, which notices it was said had been successfully challenged by the parties' appointed advisors leading to the following statement:
"We have a real and genuine concern that the requesting tax authorities' current wish for non-disclosure of the Jersey request might be motivated by a desire to deny the taxpayers the same opportunity to challenge the need or efficacy of the current notice. We would want the Jersey tax authority should [sic] be sighted on this particular concern."
8. The letter also raised that the 2022 Notice did not explain the ground upon which disclosure had been prohibited as required by Regulation 3(6)(b) of the 2008 Regulations.
9. No reply was received to this letter. However, JTC and the Trustee did not seek to challenge this application by way of an application for leave for judicial review and provided the documents required on 16 March 2022.
10. In addition to the 2022 Notice, an earlier version of the 2023 Notice was issued on 14 February 2023. This version was issued to JTC alone and did not identify the taxpayers but did prohibit JTC from informing B and C of the Notice.
11. As a result of the earlier version of the 2023 Notice being served, on 23 February 2023 a call took place between Ms Hill and Mr Luke Rochefort, Deputy Director of the JCA, who confirmed that he had no issue with the Country A's Tax Authority's request not to notify the two individuals. He also confirmed that a new version of the notice was going to be issued narrowing the information requested.
12. A further version was issued on 7 March which allowed JTC to redact information identifying other parties other than the Trust and B and C (paragraph 3b). This led to a call between Mr William Byrne, Chief Group Counsel at JTC, and Amy Jones on behalf of the Respondent, where Mr Byrne raised the issue that redaction was not an adequate solution in circumstances where information was not necessarily easily separable and that the Applicants might feel obliged to notify other affected beneficiaries who might in turn notify the prohibited individuals.
13. Following corrections of typographical errors, the 2023 Notice, the subject matter of the present application, was issued.
14. On 9 March 2023, Mr Byrne sent to the JCA an email attaching a newspaper article from a magazine called [redacted] with an article published on [redacted] which stated the following:
"The [Country A Government Department] on Friday filed 20 appeals against the order of an [Appeals Tribunal] in a matter pertaining to the imposition of [redacted] additional tax on the undeclared offshore properties owned by the [redacted] family.
[Country A's] inland revenue commissioner challenged before the [Country A High Court] the tribunal decision to set aside the additional tax amount against the business family. The counsel for the revenue board, [redacted], filed the appeals.
In the appeals, the [Country A Government Department] stated the [Appeals Tribunal] decided the matter on technicalities without discussing the merits of the case, misinterpreted the provisions of the law, and ignored the settled principles of the interpretation of the fiscal statute.
The [Country A Government Department] said the tribunal misconceived that the companies, which are separate legal entities, were being taxed rather the individuals who had admitted their investment in the companies of which they have provided no details. It was the first such case with the [Appeals Tribunal] after the offshore properties of the [redacted] family were revealed in Panama Papers."
15. The article also contained the following statements:
"The list included the names of C, D, E, B and G, with the allegation that they held shares in 34 to 38 offshore companies. After Panamagate, they came up with a revised return and wealth statements incorporating their beneficial ownership in various companies/trusts and claiming offshore assets, expenses and liabilities.
The [Country A Government Department] complained that the family did not produce any document with regard to the offshore assets, expenses and liabilities as declared in revised return and wealth statements. Such "wilful and deliberate act of withholding evidence" on part of the appellant lent credence to the fact that the family acquired offshore assets/companies through unexplained sources, the [Country A Government Department] said."
16. On 17 March 2023, Mourant Ozannes (Jersey) LLP ("Mourant") for JTC wrote to the JCA raising a number of issues.
17. Firstly, it raised that JTC was not trustee of the Trust and therefore suggested that a notice should be served on the Trustee.
18. Secondly, the letter complained that the 2023 Notice did not identify the taxpayers.
19. The letter also stated the following:
"(v) Fourthly, we note that the Notice contains a prohibition on disclosing the Notice or any information relating to it to B and C (the Prohibition). Prohibitions are very unusual. We have only come across a prohibition on one previous occasion, and that was challenged and set aside (we refer you to Temple .v. Comptroller of Taxes [2015] (1) JLR 203). As that case made clear, there has to be a very good reason to take the draconian step of a prohibition, not least because it effectively denies the taxpayer of its rights, including the right to challenge the Notice. Please explain fully the reasons for the Prohibition. Our client is not aware of any good reason for this, and indeed, as it has already mentioned to you, understands that there is a long-running tax investigation by the Country A Tax Authority, of which the relevant individuals are fully aware of.
(vi) In any event, the imposition of the Prohibition is plainly unworkable and unreasonable. We have also never come across a prohibition that purports to prevent disclosure of a notice either to some, but not all, of the taxpayers or where there are other interested parties, in this case beneficiaries of the Trust. If there are other taxpayers, you are going to have to notify the taxpayers that are not the subject of the Prohibition of the Notice. Pursuant to the terms of Regulation 3(7) of the 2008 Regulations, the Prohibition does not, and cannot, apply to them. Additionally, those individuals could not be prohibited from disclosing the existence of the Notice to the others. As you will no doubt be aware, even if the Prohibition purported to do that, the criminal liability provisions could not operate extra-territorially.
(vii) Furthermore, whether there are other taxpayers or not, in accordance with its fiduciary duties, our client will wish to discuss the matter with the beneficiaries of the Trust that are not the subject of the Prohibition. Our client's point of contact with the family is an advisor in the UK. That advisor is not subject to the Prohibition for the same reasons outlined at paragraph 3(vi) above. In any event, the Trustee cannot control the steps that any third party might take."
20. On 20 March 2023, the JCA replied stating the 2023 Notice was being upheld but allowed JTC until 8 April 2023 to respond.
21. In relation to service on the Trustee, the JCA clarified that JTC had been served because they had overall custody and control in relation to the regulations. The letter then made the following points:
(i) It was the JCA's understanding that the production notices did not need to identify taxpayers.
(ii) The letter then confirmed that the subjects of the 2023 Notice were those named by Mourant in its letter of 17 March 2023 and no others.
22. In relation to paragraph 3(v) of the Mourant letter, the JCA replied as follows:
"8. In respect of paragraph 3(v), as I think has been previously communicated to your client, the "no tipping off" provision under Regulation 3(6) has been exercised by the Requesting Jurisdiction. If you are minded to challenge this stipulation (I gather from what you say on grounds of "workability" as opposed to legality) then it is possible for you to make an application in the Royal Court: injunctive relief is not necessary, a simple summons will suffice. Regulation 3(7)(b) applies."
23. The Applicants then issued their application for leave. In the affidavit of Ms Hill filed in support of the application, Ms Hill made the following statement at paragraph 37:
" 37. The 2022 Notice is not the only other notice that has been issued in relation to this structure, and these beneficiaries. The Applicants are aware that similar notices have been issued in other jurisdictions (the Other Notices), and that the purpose of some of those notices has been to seek information in respect of certain companies owned by the Trust (many of which are also the focus of the Notice). Due to domestic restrictions, I am unable to confirm in which jurisdiction(s) those Other Notices were issued, but I understand that the Other Notices have been successfully challenged and the Applicants' concern is that the Country A Tax Authority are now trying to obtain by way of fishing expedition in Jersey what they failed to obtain for that same reason elsewhere (and improperly excluding the relevant taxpayers from the process in doing so)."
24. The point was expanded upon at paragraphs 39 and 53 as follows:
"39. The Applicants are also aware that there are tax proceedings taking place in Country A between the Country A Government Department and C, D, E, H, B and G. These proceedings were reported in a Country A newspaper, [redacted], on [redacted] see [redacted]). The article reports that the Country A Government Department filed 20 appeals against the order of the Appeals Tribunal in a matter pertaining to the imposition of [redacted] in additional tax on alleged undeclared offshore properties. This was further to a decision of the Appeals Tribunal which set aside this additional tax amount.
.....
53. The Notice represents the latest in a series of similar notices issued in other jurisdictions (and in Jersey) relating to the same structure, and to the same beneficiaries of the Trust. It is the Applicants' belief that the Notice is, like some of the notices issued elsewhere, an impermissible fishing expedition issued by the Country A Tax Authority with no clear or targeted bearing on the personal tax affairs of C and B in Country A. The Applicants are aware that similar attempts in other jurisdictions by the Country A Tax Authority speculatively to obtain information have been rebuffed, and believe that the Prohibition is a cynical attempt by the Country A Tax Authority to prevent challenge by the Beneficiaries of this latest attempt in Jersey to obtain information by similarly impermissible means."
25. The JCA filed an affidavit in response on 23 May 2023 through Mr Richard Summersgill, Comptroller of Revenue. The affidavit contains the following material paragraphs:
"7. I must adhere to the confidentiality provisions contained in the Convention which are re-emphasized in the 2008 Regulations and which are underpinned by guidance issued by the OECD for the Exchange of Information....
....
11. In view of the confidentiality obligations. I decline to exhibit the Request or to quote its contents. I am, however, prepared to depose that, as part of the Request, the Respondent was asked to prohibit the First Applicant as the recipient of the Notice from disclosing the existence of the Notice to two taxpayers named in the Request.
12. I am required to act reasonably but I am not an expert in Country A tax law, and I am not required to conduct my own investigation into the enquiries and investigations being conducted by the Country A Tax Authority nor am I required to hold any "mini-trial" of Country A law issues, It is therefore, reasonable for me to proceed on the basis that the Country A Tax Authority has acted in good faith in both making the Request and in the provisions of any additional information it has subsequently provided to me or my officers. As such, I consider that it is not for the Respondent to adjudicate matters of Country A law, and that it is reasonable to rely upon representations made by the Country A Tax Authority in this case that disclosure of information in any notice(s) issued in pursuance of the Request to two named taxpayers may prejudice the assessment, collection or recovery of tax in Country A or the investigation or prosecution of tax matters in Country A.
13. The 2008 Regulations do not permit me to impose a prohibition other than upon a recipient of a notice to produce tax information, and the prohibition can only extend to disclosing the existence of the notice to a particular taxpayer - which must include anyone considered in law to be the taxpayer in respect of whom I am requested by the requesting competent authority to prohibit disclosure. In matters of taxation across all jurisdictions with which I am familiar in relation to the use of tax agents, where a tax agent has responsibility for filing tax returns for a taxpayer and otherwise managing the tax affairs of that taxpayer that means that that agent is treated for all practical purposes in law as the taxpayer such that to prohibit disclosure to the taxpayer requires including the tax agent within that. In this case the Prohibition extends to disclosure to two named taxpayers in respect of whom I am asked to prohibit disclosure and to those named taxpayers' tax agent who is treated for the purpose of relevant legislation as the taxpayer where there is a statutory responsibility in respect of the person's tax affairs that are discharged by the agent.
14. The Country A Tax Authority have advised the Respondent that the Request has been thoroughly considered by the staff of the Country A Tax Authority and having regard to the totality of the considerations they are unable to agree that there be notification of the taxpayers they identified for the purposes of the Prohibition given the recent past experience for the Country A Tax Authority in relation to these particular individuals where there has been notification of requests to partner jurisdictions for mutual assistance and exchange of information which has resulted in damage to the enquiries undertaken by the Country A Tax Authority.
15. I am unable, in view of the terms of Regulation 3(5) of the 2008 Regulations, to impose a prohibition on the giving of notice to any person where there is no request that that [sic] I should impose a prohibition to prevent such a taxpayer having notice. Consequently, I do not dispute that it may well be possible for other beneficiaries or objects (of the trust of which the Second Applicant is trustee) to have leamed of the existence of the Notice by reason of communications from others upon whom I could not as a matter of law impose any form of prohibition on disclosure. This results from what may be considered to be a deficiency in the statutory powers conferred upon the Respondent in the 2008 Regulations. This does not mean that the Request was unreasonable or that I have acted unreasonably in imposing the Prohibition as requested or in maintaining it having discussed the same with the Country A Tax Authority. If the Court regards the Prohibition as unworkable then I do not oppose the Prohibition being lifted but it would be necessary, however, for the compliance with the prevailing international standards in this regard that that be an act of the Court. In good faith I am maintaining the Prohibition in reliance on the information provided to me in the confidence of the Convention by the Country A Tax Authority."
26. The relevant parts of the 2008 Regulations are as follows.
27. In Regulation 1, the taxpayer is defined as "The person who is the subject of the request".
28. Tax information is defined in Regulation 1A as follows:
"1A Tax information
(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."
29. The power to require a third party to provide information is contained in Regulation 3. The material paragraphs are sub-paragraphs 4 to 7 of Regulation 3 which are as follows:
"(4) Subject to paragraph (5), the competent authority for Jersey shall send to the taxpayer to whom a third party notice relates a copy of the third party notice -
(a) in a case where, at the time the third party notice is given, the competent authority for Jersey does not know the taxpayer's name and address - within 7 days after the third party has provided to the competent authority for Jersey the tax information required by the third party notice; or
(b) in any other case - within 7 days after the third party notice is given.
(5) Paragraph (4) does not require the disclosure or provision of the third party notice to a taxpayer -
(a) if the competent authority for Jersey does not know the taxpayer's name and address;
(b) if its disclosure or provision would identify or might identify a person who has provided information that the competent authority for Jersey takes into account in deciding whether to give the notice;
(c) if the competent authority for Jersey is satisfied that there are reasonable grounds for suspecting that the taxpayer has committed a relevant criminal offence;
(d) if the competent authority for Jersey is satisfied that disclosure of information of the description contained in the notice may prejudice the assessment, collection or recovery of tax or the investigation or prosecution of tax matters; or (e) if the third country has requested that the taxpayer should not be informed of any matter relating to the request on the ground that -
(i) disclosure to the taxpayer would identify or might identify a person who has provided information relating to the third party request,
(ii) there are reasonable grounds for suspecting that the taxpayer has committed a relevant criminal offence, or
(iii) disclosure of information of the description contained in the notice may prejudice the assessment, collection or recovery of tax or the investigation or prosecution of tax matters.
(6) The third party notice shall -
(a) state whether the competent authority prohibits the third party from disclosing to the taxpayer the third party notice or any information relating to the notice (including any information about a warrant issued under Regulation 12 or other information relating to enforcement); and
(b) if the third party notice prohibits that disclosure to the taxpayer, state the ground on which it prohibits that disclosure, by reference to one or more grounds mentioned in paragraph (5).
(7) The third party shall not disclose the third party notice nor any information relating to it to the taxpayer that it is prohibited from so disclosing by virtue of any prohibition contained in the third party notice except -
(a) with the written consent of the competent authority for Jersey; or
(b) with the consent of the Royal Court."
30. The Rules in relation to applying for leave for judicial review including the relevant time limits are set out in Regulation 14. A person who knowingly and without reasonable excuse contravenes Regulation 3(7) is guilty of an offence pursuant to Regulation 15(3)(b). An offence is also committed by a person who aids, abets, counsels or procures the commission of an offence under Regulation 15 (see Regulation 16(1)). The offences apply to partnerships and bodies corporate and can lead to imprisonment for up to twelve months and for directors / partners involved in the commission of the offence and / or a fine.
31. The present claim by the tax authority of Country A was a civil claim which was clear from the press article sent on 9 March to the JCA. The prohibition was not therefore justified. The case of Temple v Comptroller of Taxes [2015] 1 JLR 203 made it clear that there was a real discretion to be exercised by the JCA. In this case it was contended that there was no good reason for the prohibition. There was prima facie evidence that the taxpayers were aware of the investigation and that there were substantive tax proceedings in Country A. These proceedings appear to have been both in public and referred to in the press. There also appeared to have been challenges in other jurisdictions which further meant that the taxpayers were aware of the investigation.
32. What was not clear was whether these matters had been considered by the JCA and whether the JCA, after service of the 2023 Notice and the information provided, had gone back to the requesting authority. The response in paragraph 14 of Mr Summersgill's affidavit that the Country A authorities were "unable to agree" was not the JCA exercising its own discretion as was required by Temple.
33. In any event, the prohibition was unworkable for the Trustee. The prohibition could only extend to a taxpayer not to any third parties. The Applicants were not therefore prohibited from discussing the 2023 Notice with other beneficiaries. The difficulty they faced, however, was the risk of those beneficiaries informing the taxpayer leading to the Applicants being charged with a criminal offence either under Regulation 15(3) or, on the basis of accessory liability, under Regulation 16(1).
34. In relation to the argument of the JCA, at paragraph 13 of Mr Summersgill's affidavit that a taxpayer includes a tax agent, this was wrong in law by reference to the approach taken in Tinkler v Revenue and Customs Commissioners [2020] 1 All ER 61.
35. The approach of leaving it to the Trustee to determine what to redact was also difficult because it might leave the Trustee in breach of the requirement to provide information.
36. It was important for the Trustee to be able to talk to beneficiaries because they could provide information about the status of the investigation and provide detailed information about what was occurring in Country A.
37. Beneficiaries could also provide information about the nature of any investigation or claims to tax to enable the Trustee to evaluate whether what was being sought fell within the definition of tax information. An illustration of the importance of this issue was to be found in the recent Court of Appeal case of Imperium Trustees (Jersey) Limited v JCA [2023] JCA 057.
38. The Imperium case was also relevant because an appellant is entitled to argue that the terms of a notice are a disproportionate breach of the rights of the beneficiaries of a trust under Article 8 of the European Convention on Human Rights. Such an argument is a significant factor to be taken into account by the JCA when exercising its discretion. If there was no tax payable, this was very relevant to whether or not the information requested was foreseeably relevant to the administration or enforcement of the tax laws of Country A.
39. In addition to Temple and Imperium, Advocate Harvey-Hills also referred me to Prahl v JCA [2022] JRC 061. The Prahl case was an example where, in the light of information provided by the entity making the challenge, there was an onus on the JCA to revert to the requesting authority for further information. It was then for the JCA to consider whether all the information provided was "foreseeably relevant" (see paragraphs 45 and 50). By analogy, the same approach applied to the imposition of a prohibition once the JCA was in receipt of information which suggested that it had acted upon out of date or incorrect information. The JCA was then under a duty to establish from the requesting tax authority whether the information upon which it had relied was still accurate.
40. Advocate Harvey-Hills also was critical of paragraph 14 of Mr Summersgill's affidavit. He firstly contended this was not the JCA stating its own grounds but only relying on the Country A authorities not agreeing to the prohibition being lifted. Alternatively, the answer given in paragraph 14 was not a valid reason for a prohibition. What the Country A authorities were trying to do was either to prevent a further successful challenge where previous challenges had been made successfully in other jurisdictions or alternatively it was being suggested that notification to the taxpayers would prevent compliance by the JCA or scrutiny of any challenge by the Courts in Jersey. Neither of these reasons stood up to any analysis.
41. In relation to the Temple case, it was clear that the JCA needs to make its own assessment of the request for a prohibition (see paragraph 39). That discretion could not be delegated.
42. The present case was clearly one involving a civil claim for taxes and therefore was not in the arena of a criminal investigation where different considerations might apply. Temple and Prahl both required the JCA to explain its decision.
43. The JCA, in its written and oral submissions, ultimately submitted to the wisdom of the Court as to whether or not the prohibition should be lifted.
44. Advocate White accepted that the Royal Court had power under Regulation 3(7) to consider an application to lift a prohibition on a standalone basis.
45. He further accepted that it would be sufficient for the Court to regard the prohibition as unworkable in practice or rendered neutral by factual circumstances for the prohibition to be lifted.
46. His contentions also stated that it was not for the JCA to adjudicate on Country A law issues or to conduct a mini trial to determine the circumstances or the extent of any concerns of the Country A authorities.
47. His contentions noted that there might be gaps in the legislation depending on the ambit of the definition of 'taxpayer' if the Court did not accept the contention that the definition included tax agent.
48. In relation to the Temple decision, he sought to distinguish Temple on the basis that Temple was a case where leave to bring a challenge on the basis of judicial review had been granted.
49. He also clarified that, if the prohibition was lifted, the Comptroller would not seek to appeal the decision.
50. In relation to paragraph 14 of Mr Summersgill's affidavit, I was informed orally that this followed further inquiries being made of the Country A authorities. What paragraph 14 was concerned about was intimidation and therefore the Comptroller's decision to maintain a prohibition was one that was reasonable. Advocate White contended that the response received weighed more heavily with the Comptroller albeit he could not point to any statements in Mr Summersgill's affidavit in support of this submission. Otherwise he could not assist further on what was meant by paragraph 14. He accepted that there was no untoward pressure either on the JCA or untoward pressure that could be applied to the Courts.
51. In relation to Prahl, he considered that Prahl was wrongly decided and was also not relevant to the imposition of a prohibition.
52. In relation to whether or not a tax agent was the taxpayer, the JCA would accept the Court's ruling on the issue and he had no authority to draw to the Court's attention in relation to the arguments advanced by Mr Summersgill in his affidavit.
53. Consideration of the approach to be taken by this Court in relation to an application to lift a prohibition within Regulation 3(7) in my judgment was determined by the decision in Temple. I do not consider that Temple can be distinguished because in that case leave to bring an application for judicial review had been granted, whereas in the present case an application for leave is pending. I consider that Temple applies equally to both scenarios.
54. The Court's reasoning in Temple is to be found at paragraph 39 which is as follows:
"39. ...In my judgment, the first respondent does have a discretion to exercise even if a request is put to him under reg. 3(5)(e). Under sub-paras. (c) and (d), the competent authority for Jersey must be satisfied that the grounds exist for the suspension of his obligation to inform the taxpayer pursuant to reg. 3(4). The fact that sub-para. (e) does not contain that language does not mean that the competent authority for Jersey has no discretion to exercise when the third country makes a request that information be not disclosed to the taxpayer. It makes no sense to require the local competent authority but not a requesting competent authority to be satisfied that the ground for prohibition is established. I think the effect is that the first respondent must consider if a prohibition should be ordered, and this amounts to a discretion conferred upon him. If there is a discretion to exercise, the first respondent is not under an obligation to give effect to the third country's request, simply because the request is made, and it is a matter for the first respondent to consider the extent to which he should make enquiry before he exercises that discretion. It may well be that the first respondent, acting reasonably, would make a more extensive enquiry in relation to a civil tax matter than in relation to a criminal tax matter but even in the latter case one would expect him to do enough to satisfy himself that there was a bona fide criminal investigation."
55. This was confirmed in paragraph 40 where Sir William Bailhache stated as follows:
"40. ...In my judgment, the first respondent has a discretion of his own to exercise, which he must do in accordance with the usual principles; but the Regulations make it plain that the views of the requesting state, providing they fall within the parameters of sub-para. (5)(e), can be sufficient if the first respondent reasonably so decides. In that context, it would be critical that the first respondent satisfies himself that the request for non-disclosure is internally consistent with the rest of the application put to him."
56. In relation to where the case is a civil one, Commissioner Bailhache in paragraph 40 also stated this:
"Clearly, if the balance of the application for assistance showed that the investigation was a civil case and not a criminal case, the strength of that objection to disclosure would seem to be rather unconvincing. It is in that sort of area that the Comptroller, acting reasonably, should satisfy himself that the foreign state's request is reasonable."
57. He then went on to draw a distinction between civil and criminal activity in paragraph 41.
58. In relation to the present case, the Applicants contended, and the JCA did not appear to dispute this contention, that the claim in Country A for unpaid taxes was a civil claim.
59. It also appears, based on the information provided by the Applicants, that there are proceedings about the claim for unpaid tax in the public domain.
60. However I wish to observe that part of the approach of the Applicants in referring to challenges in other jurisdictions to request for information at paragraphs 37, 39 and 53 of Ms Hill's affidavit lacked in detail and was not helpful. I therefore know nothing more about these challenges other than what has been explained in Ms Hill's affidavit - namely some challenges have been made somewhere, possibly in more than one country, which have been successful, without any explanation as to why, but where some order or law of the country concerned prevents me from knowing about the same. The challenges also appear to be known to the taxpayers, the Applicants and the requesting authority. It is not therefore clear to me why more detail could not have been provided about these challenges or what law prevented me from being provided with potentially relevant information. Such detail may also be relevant to the application for leave. If the concern is an obligation to respect privacy laws of some other jurisdiction, then recognition of that difficulty can be addressed by the Court keeping such evidence private or only referring to it on an anonymised basis if necessary to do so. In the hearing I expressed the hope that this issue could be addressed before the application for leave. I repeat that request.
61. Returning to the application before me, the key part of the evidence provided in relation to the decision of the JCA is paragraph 14 of Mr Summersgill's affidavit. In relation to this affidavit, the statement that the Country A Tax Authority was unable to agree to notification is not a sufficient basis for the JCA to impose a prohibition. I accept this paragraph implies that the JCA reverted to the Country A authorities in response to the challenges made by the Applicants. However, the extracts from Temple above make it clear that the JCA have to exercise their own discretion in deciding whether or not to impose a prohibition. The fact that the Country A authorities do not consent to the taxpayers being informed is only a factor to be taken into account. It is not determinative; yet it is the first reason given in paragraph 14.
62. The second reason given in paragraph 14 was that there had been 'damage' to the enquiries undertaken by the Country A authorities where there had been notification of requests to other jurisdictions. The affidavit of Ms Hill, although lacking in detail, expressly raised the point that there had been unsuccessful requests for information in other jurisdictions made by the Country A authorities. There was no response to this evidence. I therefore agree with the Applicants that challenges to requests in other jurisdictions which have succeeded is not a basis to impose a prohibition.
63. I further accepted the submission that what is meant by 'damage to the enquiries' is not clear. While I accept that the JCA is not required to conduct its own investigation, it should have sought more clarity about what was meant by this phrase. If what was meant by it involved improper conduct, in particular, criminal conduct, then that would be a justification to impose a prohibition. If there were criminal investigations in relation to any such improper conduct, that could also be a basis to impose a prohibition because of the risk of further criminal offences being committed. The position, however, is not explained. When coupled with the Country A authorities being unable to agree, the impression I was left with was that the prohibition was sought because of other successful challenges in other jurisdictions. That is not a ground to impose a prohibition. The failure by the JCA to address this point in its response means that its decision to impose the prohibition must be set aside.
64. The conclusions that I reached are also consistent with the Royal Court's decision in Prahl. While that case was an application for judicial review rather than about a prohibition, I consider that the approach taken in Prahl where the Court found that there was a duty on the JCA to revert to the tax authorities in Sweden (see paragraph 45) is the same approach that I consider that the JCA should have taken in relation to the prohibition in the present case. Like Sir Michael Birt at paragraph 46 of Prahl, I also emphasise that the JCA merely has to be satisfied that there are reasonable grounds for imposing a prohibition. However, once the Applicants disclosed that the tax investigation in Country A was civil, and in the public domain and there have been other successful challenges in other jurisdictions to requests for information, it was for the JCA to revert to the Country A authorities for further information and to then evaluate that information. While I accept they did the former, the evaluation in paragraph 14 of Mr Summersgill's affidavit did not address the concerns raised by the Applicants and means that the JCA did not have reasonable grounds for maintaining the prohibition. This was sufficient for me to conclude that the prohibition should be lifted. In reaching this conclusion I accept that the JCA was not required to conduct its own investigation; that is not the same as being under the duties described in Temple and Prahl, to exercise its discretion and to review that exercise where relevant grounds to challenge the same are raised.
65. In reaching the above conclusions, I accept that there is an issue about how much detail the JCA should provide about its discussions with the Country A tax authority. Just as the JCA is not obliged to disclose the request received from a requesting authority, nor is it obliged to disclose the exchanges that have taken place where information is received which might cause the JCA to question its original decision whether to impose a prohibition or issue a notice. The JCA's obligation is therefore limited to explaining its decision (see the observations in Prahl at paragraphs 117 and 118). That explanation may be brief but it must be rational and must be more than parroting the statutory language (see paragraph 14 of Temple).
66. The conclusions I have reached were therefore sufficient to allow me to lift the prohibition on the day of the hearing. Strictly speaking, therefore, it is not necessary for me to address the other arguments raised by the Applicants. However, in view of their importance I consider it appropriate to do so.
67. In relation to the JCA's argument that the tax agent should be treated as the taxpayer, this submission does not sit with the definition of taxpayer in the 2008 Regulations as being "the person who is the subject of a request". The 2023 Notice is only investigating B and C and not anybody else. There is no agent who could be said to be the subject of a request and so the 2023 Notice as a matter of construction cannot extend to anyone who is a tax agent.
68. Secondly, the prohibition in Regulation 3(5) is also not to inform the taxpayer not anyone else. Regulation 3(5) itself does not extend to allowing a prohibition not to inform anyone who is not a taxpayer. In expressing this view, I understand the concern of the Applicants that they might commit a criminal offence if they inform someone that they know will, or is likely to, inform a taxpayer because that might give rise to at least accessory liability for aiding and abetting a breach of any prohibition of informing the taxpayer. Such a risk is a justification for seeking a court order to lift a prohibition but this is a separate risk from whether Regulation 3(5) covers anyone other than a taxpayer which in my view it does not. If as a result of this conclusion, what is needed are wider powers to prevent third parties from informing the taxpayer, such as agents or advisors, as part of a prohibition, then it is a matter for the States of Jersey whether the regulations need amendment to address such a scenario.
69. In relation to the other arguments advanced by the Applicants of the need to inform the tax agent or beneficiaries of the 2023 Notice, if there was a prohibition on informing taxpayers, or that the process of redactions was not workable, given my decision that the prohibition is lifted on the grounds I have already set out, it is not necessary for me to reach a definitive conclusion on the basis of this alternative argument and I do not do so. Nevertheless I make the following observations should such an argument arise in the future.
70. Firstly, as is clear in the present case, a trustee may well have a significant understanding of the structure that it is responsible for. Given current money laundering obligations, a trustee is also likely to have an understanding of what tax is payable by entities within the structure it administers. The trustee may also well have an understanding of what tax is payable as a result of distributions or benefits made available to beneficiaries from a trust structure. It is not therefore uncommon for a trustee to have been provided with or have taken significant tax advice about the structure and the position of some or more of the beneficiaries for which it is responsible. Simply because a notice is served under the 2008 Regulations on a trustee does not justify other beneficiaries having to be told about the notice. It may well be that the trustee has sufficient information itself to determine whether or not to comply or whether or not to bring an application for leave without having to consult with beneficiaries. To accept that every trustee is served with a notice containing a prohibition will need to discuss that notice with other beneficiaries is too broad a statement of principle and runs the risk of undermining the effectiveness of the regulations and Jersey's desire to assist in the fight against tax evasion.
71. A trustee who wishes to discuss a notice served upon it with other beneficiaries or other advisers where that trustee is concerned about the risk of accessory liability will therefore have to justify why it is necessary for the trustee to discuss the notice with others which will require it to explain what information it holds, why it is concerned about the ambit of the notice and what additional information it believes it needs in order to decide whether or not to challenge a notice served upon it. A trustee who suggests that a process of redactions was not workable would also have to explain why that was the case. While the Applicants in the present case made this assertion, it was not clear to me why this was so, especially where information had been provided under the 2022 Notice, which had required disclosure of all the beneficiaries and assets of the Trust.
72. Finally, in relation to the 2022 Notice, in view of my decision to lift the prohibition in the 2023 Notice, the Applicants are left in a difficult situation of not being able to inform the taxpayers about the 2022 Notice, but they can inform the taxpayers about the 2023 Notice. Although I refused to deal with the matter in the present application, because there was no application before me to lift the 2022 Notice and the JCA had not had any opportunity to consider the same, given my decision, if the parties were agreed that the 2022 prohibition in the 2022 Notice be lifted I would be happy to approve the same. If argument is required on this issue then I will also consider the same.
73. The other observation I wish to make in relation to the 2022 Notice compared to the 2023 Notice is that the 2022 Notice sought information about the Trust, and that notice was not challenged. The 2023 Notice seeks information about the structures underlying the Trust, as well as information concerning the Trust. While the extent of any overlap between the two requests is not clear to me, on the application for leave the Court might need to be addressed on the fact that some information has already been provided without challenge and whether that is relevant to a current challenge to the reasonableness of the decision taken by the JCA in relation to the 2023 Notice.
74. I will be addressed on costs at the handing down of this judgment.
Authorities
Taxation (Exchange of Information with Third Countries) (Jersey) Regulations 2008 (As Amended).
Taxation (Implementation Convention on Mutual Administrative Assistance in Tax Matters) (Jersey) Regulations 2014.
Temple v Comptroller of Taxes [2015] 1 JLR 203.
Tinkler v Revenue and Customs Commissioners [2020] 1 All ER 61.
Imperium Trustees (Jersey) Limited v JCA [2023] JCA 057.
Prahl v JCA [2022] JRC 061.