The great exchange

The G20 Summit ensured that tax information exchange remained firmly on the international political agenda, says Geoff Cook

The Organisation for Economic Co-operation and Development's (OECD) action plan - designed to "tackle tax avoidance, harmful practices, and aggressive tax planning" - was endorsed in its entirety at the G20 Summit in September. Now, the challenge is how to achieve that aspiration.

The G20's report also highlighted the progress being made by the 112 countries forming the OECD Global Forum on tax transparency. It covered the adoption and application of information exchange on request, and gave details on the performance of individual countries in following through on their obligations and agreements, and the improvements they are making to their legal practices and information exchange processes.

This sort of trying and testing of the OECD model tax information exchange agreements (TIEAs), which in practical terms are relatively new developments, is an interesting point for all territories signing up to them. In Jersey, described by the OECD as being "cooperative and responsive" in relation to information exchange, it is only now that aspects of the model treaty are being explored through the legal process.

The recent case of Larsen was interesting and complex, and provided an indication of how the courts will interpret treaty obligations as well as clarifying the roles of the requesting and requested competent authorities. It focused very much on the nature and form of the request, while alluding to some potentially criminal matters, but with the notice of request issued through the tax comptroller as opposed to the attorney general. The Norwegian authorities' contention was they did not have complete information on companies where Mr Larsen had interests that they deemed to be relevant to his Norwegian tax affairs.

Vigorous compliance

The judgement and the actions of the Jersey comptroller provide, in my view, a few useful points. First, international treaty obligations are a significant and weighty matter. Compliance is important and, if requested in the prescribed manner, will be pursued vigorously by the Jersey authorities, including through the courts.

Second, the onus of determination of what is "foreseeably relevant" must lie principally with the requesting party, again provided the request is made in the prescribed format and with sufficient information. It is not for the Jersey comptroller to become enmeshed in foreign tax law disputes.

And third, if the request is not made in the prescribed form and has insufficient information or is clearly not relevant to the tax affairs of the requested party, it could be treated as a fishing expedition and is likely to be refused.

However, this statement needs qualification: the OECD commentary makes it clear that 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. The presumption is that it is difficult, if not impossible, for the requested party to say what is or is not relevant.

Practical impact

So, how should we interpret this practically? Citizens' rights of appeal through an independent judicial process are fundamental in a healthy functioning democracy. However, those who frustrate the process and cause great delay in exchanging tax-related information in reasonable circumstances are likely to face significant costs and, based on this judgement and the actions of the Jersey government, a fairly slim chance of success.

Of course, alongside the TIEA model, there is now widespread support for the development of a global standard on automatic exchange of information.

Here, Jersey is well placed too. It has recently signed a milestone intergovernmental agreement with the UK to exchange tax information automatically. Jersey has also agreed to automatic information exchange with the US, the G5 and the OECD multilateral convention on tax, and has submitted an action plan to the UK covering enhanced data capture and information exchange mechanisms, placing Jersey well ahead of the game.

One residual concern is that these measures are universally adopted as they will be expensive and resource-hungry. It is important that all nations share the burden with equal commitment and reciprocity in the effort to tackle tax evasion.

With that in mind, how long will it be before the OECD is instructed to introduce a new list of non-cooperative territories who have not committed to automatic exchange? I suspect not very long at all.

Geoff Cook is the CEO of Jersey Finance

He writes a regular blog about Jersey for Private Client Adviser

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