ON 1 JANUARY 2016, Jersey’s financial institutions began implementing due diligence processes required under the Common Reporting Standard (CRS) regime. The transition from conception to implementation has been swift – the G20 only endorsed CRS in April 2013, with 40 nations signing up as ‘early adopters’ in March 2014.
Some claim the pace of implementation has come at the expense of the OECD’s stated raison d’être for the CRS – to ensure access to relevant information to enforce a contracting state’s domestic tax laws – being overreached. In the area of trusts, for example, the CRS definition of ‘Reportable Persons’ potentially includes individuals who don’t have (and may never have) any legal control over or a definite interest in trust assets – seemingly requiring disclosure of information on individuals who aren’t even aware of the trust’s existence.
Jersey’s Court of Appeal recognised the potential ‘tension between the private interest in commercial confidentiality and the public interest in international cooperation in the investigation of potential tax evasion’ in the 2013 case of Volaw & Larsen v Comptroller of Taxes. This case related to notices issued by Jersey’s Comptroller following information requests by the Norwegian tax authorities. The case was revisited by Jersey’s Royal Court in December 2015. It threw into focus changes made in 2013 to Jersey’s Tax Information Exchange Agreement (TIEA) regulations governing the procedure for obtaining tax information requested by another state, which happened at the very time the OECD’s plans for the CRS were evolving.
These changes to Jersey’s TIEA regulations in 2013 had been a swift response to France’s blacklisting of the island as an ‘uncooperative jurisdiction’, allegedly for dragging its heels on French tax information requests. The amendments included a reduced time limit by which to respond to an information request; removed the requirement for the Comptroller to identify reasons for serving a notice; and introduced a requirement to comply notwithstanding the commencement of an appeal against a notice. In addition, the right of a full appeal was replaced with judicial review, meaning that a notice from the Comptroller could only be challenged on the basis of illegality or procedural deficiency.
It was the validity of those amended TIEA regulations themselves, not just the notices served under them, that were challenged in the 2015 proceedings. However, the Royal Court rejected the assertion that those regulations exceeded the scope of either the principal legislation under which they were created or human rights legislation. It did not consider that the notices had imposed unjustified or disproportionate requirements, and so rejected the argument that the notices went beyond the scope of what was permitted by the TIEA regulations themselves. Neither did the Royal Court accept that failing to give reasons for the notices having been served, or to afford the opportunity to make representations to the Comptroller before service, constituted a breach of natural justice.
The Court observed that the 2013 amendments had been introduced in order to remove impediments to effective access to relevant information that could be exploited, and to bring Jersey legislation into broader alignment with that of other jurisdictions. However, the Court did acknowledge that France’s blacklisting had been the catalyst for those urgent amendments, and that in other jurisdictions, such as the United Kingdom, greater rights are accorded where requests are made under a TIEA.
France’s 2013 proscription was not unique. Both before and since, the Channel Islands have found themselves unexpectedly included on – and often as swiftly removed from – seemingly arbitrary blacklists by various European countries. According to some commentators, this shows that the tax frameworks of certain jurisdictions are predicated on a suspicion and misunderstanding of common law juridical entities such as trusts, and of the role of international finance centres (often common law based) more generally.
March 2014 may have brought a joint statement of commitment to the CRS by those early adopters, and the 2013 amendments to Jersey’s TIEA regulations a broader legislative alignment. However, it’s less certain that the CRS/TIEA regime as implemented will ultimately reflect a true meeting of minds between Jersey and certain other contracting states. It remains to be seen whether there is a common understanding as to where the correct balance lies between the right to commercial confidentiality and global co-operation – or how effectively Jersey’s TIEA framework will operate to constrain potentially irrelevant or indiscriminate requests for information.