TIEAs - A Modern Day Scylla And Charybdis?

The British Virgin Islands operates one of the most robust and accountable regulatory systems in the world. It is more compliant with global financial regulatory standards and more transparent than many G7 countries including the UK and Germany. In recognition of the Territory's commitment to regulatory excellence, the BVI was placed on the OECD 'White List' in 2009. As a part of its continued commitment to promoting transparency and prevention of tax evasion, the BVI is a signatory to the Common Reporting Standard (the CRS), an OECD initiative that created a global automatic exchange of information between signatory nations. A fundamental part of the functioning of the CRS is the implementation of tax information exchange agreements (TIEAs). The BVI Government has signed and implemented 25 TIEA in recent years with jurisdictions such as Australia, Canada, China, France, Germany, India, Japan, the UK and the USA.

Latterly, onshore governments spurred by electorate concern at the apparent erosion of tax bases have shown a considerable appetite for seeking highly confidential fiscal information about BVI persons through the TIEA mechanism. The TIEA mechanism is not an arbitrary power however and has become open to abuse in an environment where offshore authorities are eager to appear cooperative.

Harneys is currently instructed to act for a number of BVI persons who have received TIEA requests seeking information regarding assets belonging to BVI companies named in the TIEA request and underlying beneficial ownership information. In the BVI, the International Tax Authority (the ITA) is a public body with functions under the Mutual Legal Assistance (Tax Matters) Act 2003 (the MLA). Harneys was instructed to seek leave to challenge the ITA's decisions to issue each of the Applicants with a Notice to produce information for the purpose of the BVI complying with a request from another State under a TIEA (the Request).

How to deal with TIEAs - Judicial Review?

Harneys acted swiftly in restraining the disclosure requirement under the Request and obtained leave to judicially review (ie legally challenge the executive decision to issue the Notice). Harneys, on behalf of the Applicants, contended that the Notices did not comply with the ITA's duty of procedural fairness. The Applicants submitted that they are entitled to be told which country has sought the information (under which TIEA), in respect of which taxpayer and for what tax period, and all other information in the Request to enable the Applicants to satisfy themselves and to make informed representations as to whether the Request and therefore the Notice are both invalid and whether it is appropriate for the Request to be acted on by the authorities of the BVI. In granting leave, Ellis J., sitting in the BVI High Court, agreed with Harneys' preliminary argument as articulated above.

The MLA and the TIEA

Section 5(1) of the MLA states that the Financial Secretary, or a person or authority designated by him, may, "for the purposes of complying with a request under [a relevant international Agreement], by notice in writing, require any person to provide such information as may be specified in the notice, provided that:

the person is reasonably believed to be in possession or control of the information to which the notice relates, or the information requested is information held by a bank or other financial...