16 December 2015
Larsen and Volaw v Comptroller of Taxes and States of Jersey  JRC 244
The Royal Court of Jersey has dismissed a challenge to the validity of the Taxation (Exchange of Information with Third Countries) (Jersey) Regulations 2008 (the "Regulations").
It was alleged that the Regulations:
- were ultra vires (i.e. went beyond the powers of) the enabling legislation (the Taxation (Implementation) (Jersey) Law 2004) (the "2004 Law"); and/or
- infringed the Human Rights (Jersey) Law 2000 (the "Human Rights Law") and/or the rule of law (i.e. the principle that all persons are regulated by law and not by arbitrary action by government).
The challenge to the Regulations arose out of two sets of judicial review proceedings brought independently by (i) Mr Larsen, Volaw Trust and Corporate Services Limited ("Volaw"), and various entities administered by Volaw; and (ii) Fiduciana Trust (Cyprus) Limited ("Fiduciana").
The proceedings also challenged notices that had been issued by the Comptroller of Taxes in response to requests for information from the Norwegian Tax Authority and the Indian Tax Authority pursuant to tax information exchange agreements ("TIEAS") between Jersey and Norway, and Jersey and India.
This note will focus on the challenges advanced by Mr Larsen and Volaw, who had previously brought related proceedings before the Royal Court and the Court of Appeal. See our briefing notes on this here:
Challenge to the Regulations
In determining the challenge to the Regulations, the Royal Court considered whether the Regulations are: within the enabling power; compatible with the Human Rights Law; and proportionate.
Within the enabling power
The 2004 Law enables the States to make Regulations that are "necessary or expedient" for the purposes of implementing TIEAs, in addition to "dealing with matters arising out of or related to" such TIEAs.
The Court found that the Regulations (as subsequently amended in 2013) were within the scope of those envisaged when the 2004 Law was enacted.
Pursuant to the 2013 amendments [insert link to briefing note re. the amended regulations- dated 7 November 2013]:
- certain time periods were abbreviated;
- a person was no longer entitled to an opportunity to provide the documents voluntarily and instead was served with a notice requiring provision of documents; and
- the nature of an appeal was limited in scope to judicial review, with the possibility of a further appeal only to the Privy Council.
The purpose of the amendments was to reduce any delay in responding to a request under a TIEA and to enable Jersey to meet the international standards for exchange of tax information. Accordingly, the Court found that the States must have considered the amended Regulations to be "expedient" for the purpose of TIEA-related matters.
Compatible with Human Rights law
The Royal Court found that the amendments to the Regulations were compatible with the Human Rights Law.
In particular, the Court found that:
- a right of judicial review is not an unjustifiable restriction on the rights of access to the court or to a fair hearing contrary to Article 6 of the European Convention on Human Rights (the "ECHR");
- the time limit of 14 days for instituting judicial review proceedings is not an infringement of substantive or procedural Human Rights law; and
- it is not a requirement of Article 6 of the ECHR that applicants be provided with an appeal from a decision of the Royal Court
The Royal Court found that the amended Regulations were a proportionate reaction to the pre-existing impediments to the effective exchange of tax information between Jersey and other States.
Challenge to the notices served on Volaw
The natural justice issue
As a matter of natural justice, the applicants asserted that Volaw should have been afforded an opportunity to make advance representations to the Comptroller prior to the service of the notices. They relied on the decision of the Court of Appeal in Volaw Trust and Corporate Services Ltd and Larsen v the Comptroller of Taxes  JCA 239, in which the Court found that "elementary fairness" required the Comptroller to give a person an opportunity to make representations prior to service of a notice.
Importantly, at the date of the Court of Appeal's decision, which pre-dated the amended Regulations, there was a statutory requirement that the Comptroller afford a person a "reasonable opportunity" to provide the documents without notice.
In light of the amendments to the Regulations, the Royal Court modified the Court of Appeal's dictum so that "the Comptroller can, if he reasonably thinks fit, offer an opportunity to a person to whom he plans to send a notice an opportunity to persuade him to abandon that plan but he is not obliged to do so".
The notices are ultra vires the Regulations
It was the applicants' position that the notices served on Volaw are ultra vires the Regulations as imposing unjustified and disproportionate requirements on Volaw.
The Royal Court accepted that a notice served under the Regulations must be proportionate, and found that the notices served on Volaw satisfied the requirements of rationality and proportionality.
Privilege against self-incrimination
It was asserted that the notices breached Volaw's and its directors' privilege against self-incrimination in that the Norwegian Tax Authority is investigating the possibility of criminal offences by Volaw and its directors, as well as Mr Larsen.
The Royal Court rejected this argument on the basis that:
- the principle against self-incrimination is primarily concerned with respecting the right of an accused person to remain silent rather than the use of documents which may be obtained through the use of compulsory powers; and
- Volaw's argument, if successful, would frustrate the entire purpose of the TIEA.
The Royal Court accepted that the information requested may include "personal data" and that the Comptroller of Taxes is a "data controller", within the meaning of the Data Protection (Jersey) Law 2005 (the "DPL"). Accordingly, subject to any exemptions, the Comptroller must comply with the first, second and third data protection principles, which, in summary, concern "lawfulness, fairness, propriety and precision of purpose and proportionality".
The Royal Court found that the exemptions provided for in Article 29 of the DPL (entitled "Exemption: crime and taxation") applied, such that the Comptroller would not be required to comply with the relevant data protection principles.
This decision provides helpful guidance on the operation of the amended Regulations, and reinforces Jersey's commitment to the implementation of internationally agreed standards of transparency and exchange of tax information.