Category: Case Updates

Court of Appeal: Comptroller of Income Tax v BBO [2014] SGCA 10

On By taxsgIn Case Updates

17 February 2014

Revenue Law — Income Taxation

Facts

The Appellant is the Comptroller of Income Tax, while the Respondent is a Singapore-registered company and part of the [C] Group of companies. The Respondent carried on the business of a general insurer in Singapore and was registered under the Insurance Act (Cap 142, 2002 Rev Ed) (“the Insurance Act”) until December 2009.

Pursuant to sec 17(1) of the Insurance Act, an insurer is required to establish separate insurance funds for each class of insurance business and to ensure that all assets, receipts, liabilities and expenses are properly attributed to the relevant fund. Accordingly, the Respondent established the Singapore Insurance Fund (“SIF”) and the Offshore Insurance Fund (“OIF”) in respect of its Singapore and overseas policies respectively. The SIF and OIF were used to invest in [C], [D] and [E] shares.

In 2001, the Respondent sold its entire holding of [C] shares to [F], an unrelated company, and made a gain of about S$89.2 million. In 2002, the Respondent also sold its portfolio of [D] and [E] shares in the OIF and made gains of about S$7.9 million and S$1.4 million from the sale of [D] shares and [E] shares respectively.

The Appellant took the view that the gains made by the Respondent were taxable and issued revised assessments for the year of assessment (“YA”) 2002 and YA 2003 to the Respondent. Following this, the Respondent made a request for amendment. In 2010, the Appellant issued a Notice of Refusal to Amend the Assessments for YA 2002 and YA 2003.

Subsequently, the Respondent filed Notices of Appeal against the Appellant’s revised assessments for both YA 2002 and YA 2003. The appeals were allowed by the Income Tax Board of Review (“the Board”) in 2012. The Appellant then appealed against the Board’s decision to the High Court but the appeal was dismissed. In 2013, the Appellant filed a Notice of Appeal against the decision of the High Court.

Issues

  • Whether the gains arising from the sales of the shares were profits of the Respondent’s business, falling with sec 10(1)(a) of the Income Tax Act (Cap 134, 2008 Rev Ed) (“ITA”), and therefore liable to be taxed.
  • Whether the Insurance Act was determinative of whether the gains attributable to the shares arose in the operation of the Respondent’s insurance business in carrying out a scheme for profit-making.

Conclusion

The Appellant’s appeal was unsuccessful.

The Court of Appeal was satisfied on the totality of the evidence that the Board was well entitled to find that the shares were in fact capital assets, the gains attributable to which were not taxable under the ITA. It follows that the High Court did not err in affirming the determination of the Board.

In coming to this decision, the Court of Appeal considered the following:

1. Relevance of the Insurance Act

The Appellant’s argument that the gains from the sales of the shares were taxable as income, largely relied on sec 17 of the Insurance Act. Section 17(1) of the Insurance Act provides for the establishment by an insurer of separate insurance funds for each class of its insurance business, while sec 17(4) stipulates what must be paid into an insurance fund and the restrictions on what an insurance fund may be used for.

The Appellant’s primary argument was that the shares were attributable to the Respondent’s insurance business as the shares were acquired, by applying the proceeds of premiums received, in the course of the insurance business and were at all times in its insurance funds.

The Court of Appeal disagreed with the Appellant’s argument, and held that the regulatory requirement for the establishment and maintenance of insurance funds could not without more restrict an insurance company from holding capital assets in its insurance funds. Furthermore, assets which are acquired with the receipts of income would not invariably be of a revenue nature. The relevant enquiry to be undertaken in cases involving the taxation of investment gains by insurance (or similar) companies may be summarised as follows:

(a) The crucial question is whether the gain in question is a mere enhancement of value by realising a security or whether it was made in an operation of business in carrying out a scheme for profit-making.

(b) This is ultimately a question of fact to be determined according to ordinary concepts having regard particularly to the circumstances under which, and the purposes for which, the investments were acquired and held by the taxpayer.

(c) However, as a matter of practicality, the nature of insurance (or similar) businesses would ordinarily give rise to an inference that the gains concerned arose in the course of trade or in the operation of business in carrying out a scheme for profit-making (unless, of course, there is cogent evidence that the investments were acquired and held as capital assets).

Therefore, the Court of Appeal were of the view that the Insurance Act was not determinative of whether the gains attributable to the shares arose in the operation of the Respondent’s insurance business in carrying out a scheme for profit-making.

2. Application of the relevant legal principles to the facts

The Court of Appeal held that the shares were capital assets and the gains attributable to them were therefore not liable to tax, based on the following factors:

(a) Motive of the taxpayer

The Respondent did not acquire the shares with an intention to trade in them. Instead, the Respondent’s intention in holding the shares was to promote the long-term strategic interests of itself and the [C] Group. This was evidenced by the numerous cross-holdings of shares and cross-directorships between companies within the [C] Group. Any decision to sell any shares or rights in the companies within the [C] Group was closely scrutinised and reviewed to ensure that the appropriate level of shareholding and effective control was maintained. The Respondent was not allowed to sell any of its shares and rights in relation to companies within the [C] Group without the requisite approval from [C]. The shares were also treated differently and segregated from shares that were readily traded by the Respondent. It was therefore evident that the shares were held as part of a corporate preservation strategy as opposed to for the purposes of trade.

(b) Duration of ownership

The [C] shares, [D] shares and [E] shares were accumulated over a period of 30 years, 20 years and 27 years respectively. This is in line with the Respondent’s stated intention of holding the shares for an indefinite period pursuant to its corporate preservation strategy.

(c) Multiplicity of disposal of the shares

Consistent with the stated corporate preservation strategy, there were few disposals of the shares by the Respondent throughout its relatively long period of holding. Prior to 2002, there were no disposals for the [D] and [E] shares.

(d) Finances

The Respondent did not need to and did not in fact liquidate the shares to meet its liabilities in the insurance business. As such, there was a weak nexus between the sale of the shares and the carrying on of the Respondent’s insurance business.

(e) The insurance funds

The statutorily mandated insurance funds and solvency requirements are not determinative of whether an investment is a capital asset for the purposes of income tax. Insurance companies (whether holding assets in the insurance fund or shareholders’ fund) can and should only be taxed according to the ordinary principles of revenue law. While the holding of an asset in a particular fund can be a relevant factor in ascertaining whether the investment is intended to be held as a capital asset, in the Respondent’s case, the shares were held pursuant to its corporate preservation strategy. In these premises, the relevant regulatory framework is insufficient to offset the very strong inference that the Shares were intended to be (and were in fact) held as capital assets.

The above judgement was delivered on 4 February 2014.

High Court: Mohd Nizam B Ismail v Comptroller of Income Tax [2014] SGHCR 03

On By taxsgIn Case Updates

10 February 2014

Insolvency Law — Bankruptcy — Statutory Demand

Facts

In 2012, the plaintiff negotiated with the defendant over his unpaid taxes and an instalment repayment plan was agreed, which the plaintiff adhered to throughout the year.  After being retrenched in January 2013, the plaintiff informed the defendant that he would have difficulties adhering to the repayment plan for 2013 and was granted a revised instalment plan until March 2013.  The plaintiff adhered to the revised plan. In March 2013, the plaintiff was granted another revised instalment plan until May 2013. In addition, both parties agreed to meet again in May 2013 to discuss in good faith and reach a reasonable agreement for future instalments in light of any new employment status (the “Agreement”). The plaintiff again adhered to the revised plan.

In May 2013, the defendant informed the plaintiff that further extended or temporary instalment payment plans would not be considered. In addition, the plaintiff was told to maintain sufficient funds in his bank account to make full payment by Giro of his tax arrears amounting to S$117,716.92, failing which recovery action including legal proceedings would be taken against him. In response, the plaintiff wrote to the defendant and made reference to the Agreement, stating that he would not be able to make payment of his tax arrears.

When the plaintiff’s tax arrears were not settled in June, the defendant offered an extension of two weeks for the amount to be paid.  The plaintiff again wrote to the defendant, made reference to the Agreement and stated that he would not be able to pay his tax arrears by the deadline. The defendant in its response offered to allow the plaintiff to pay his tax arrears by way of three monthly payments from July to September 2013.  This was followed by another payment plan proposal whereby the plaintiff would be allowed to pay his tax arrears, including his Years of Assessment (YA) 2013 tax, by way of monthly instalments from September 2013 to September 2014.  The date to pay the first monthly instalment was subsequently extended by two weeks and the plaintiff was also allowed to propose an alternate payment proposal before then.  In the meantime, the plaintiff secured employment as a partner of a law firm in July 2013.

In September 2013, the plaintiff submitted his payment proposal.  This was, however, rejected by the defendant on the grounds that many attempts had been made to accommodate the plaintiff, and it could not agree to the plaintiff’s proposal as the tax arrears had long been outstanding. The defendant also informed the plaintiff that it would commence proceedings to recover the tax arrears.

In October 2013, the defendant served a statutory demand on the plaintiff in respect of unpaid taxes totalling S$111,716.92 for YA 2010 to 2012.

Subsequently, the plaintiff filed an application pursuant to rule 97 of the Bankruptcy Rules (Cap 20, R 1, 2006 Rev Ed) (“Bankruptcy Rules”) to set aside the statutory demand.

Issues

  • The plaintiff relied on rules 98(2)(b) and (e) of the Bankruptcy Rules, which provide that the court shall set aside a statutory demand, if the underlying debt is disputed on grounds which appear to the court to be substantial, or if the court is satisfied, on other grounds, that the demand ought to be set aside.  The test to be applied in an application to set aside a statutory demand is therefore, whether or not there is some real doubt, or triable issues, to go to trial.
  • Whether the defendant should be estopped from claiming on an immediate full repayment of the debt by reason that it would be unfair for the defendant to retract from the Agreement.

Conclusion

The plaintiff’s application to set aside the statutory demand was declined on the following grounds:

  • The Agreement was too uncertain to be enforced. There was no clarity nor any agreed criteria as to what would amount to a “reasonable” agreement. There was no agreed process or mechanism to resolve matters, if negotiations between the parties proved unsuccessful or if the parties disagreed as to what instalment plan was reasonable.
  • The court was also not satisfied that a triable issue has been raised as to whether the defendant should be estopped from claiming an immediate full repayment of the debt from the plaintiff.  While there was clearly a representation by the defendant that included a promise that the parties would negotiate in good faith, the court was not convinced that the promise was that the debt would not be enforced until negotiations culminated in a reasonable agreement between the parties. There was no clear promise that the defendant would not pursue its legal rights until a reasonable agreement was reached. Furthermore, it was unclear how such an agreement was intended to be reached or how disagreements between the parties (including as to what was “reasonable”) were to be dealt with. The promise was therefore not sufficiently unambiguous, clear and certain for estoppel to be invoked.

The defendant was therefore authorised to file a bankruptcy application against the plaintiff, pursuant to rule 98(3) of the Bankruptcy Rules.

The above judgement was delivered on 29 January 2014.

Court of Appeal: BFC Development LLP v Comptroller of Property Tax [2014] SGCA 09

On By taxsgIn Case Updates, Corporate Tax

4 February 2014

Revenue Law — Property Tax — Occupier

Facts

This is an appeal of the Appellant for property tax refunds (“vacancy refunds”) in respect of its various leased premises (hereinafter referred to as “the Units”) for the period between issuance of the Temporary Occupation Permit (“TOP”) for the Units, and the commencement of the lease (“Term Start Date”).

The Appellant is the owner of two tower blocks at Marina Bay Financial Centre and had, prior to the issuance of TOP for the Units, secured a number of tenants. The tenants had each signed the acceptance of a Letter of Offer, enclosing the Form of Lease agreement, providing for a rent-free fitting-out period starting on the date on which the tenant was required to take possession of the premises (“Possession Date”). The fitting-out periods varied amongst the different tenants.  Rent was only payable from the date of commencement of the lease, which was immediately after the end of the fitting-out period. During the fitting-out periods, the tenants did not move into the Units, but their contractors conducted fitting-out works in the Units.

The Appellant filed claimed vacancy refunds from the date of issuance of TOP until the Term Start Date (“Claim Period”), which included the fitting-out period. The Comptroller of Property Tax (“the Respondent”) had initially allowed the refund claims for the entirety of the Claim Period, but later withdrew the refunds on the grounds that the Units were not “unoccupied” for the purposes of sec 8 of the Property Tax Act (Cap 254, 2005 Rev Ed) (“the Act”) as the Appellant had by then secured tenants, who had taken possession of the Units and were carrying out fitting-out works. The Appellant consequently applied for a Mandatory Order that the Respondent refund the property tax in respect of the Units during the fitting-out period, and a declaration that it was entitled to such refunds.

The High Court Judge heard the parties on 25 October 2012 and dismissed the Appellant’s application by a written judgement on 28 November 2012 on the grounds that:

  • The Units were not “unoccupied” within the meaning of sec 8 of the Act during the fitting-out periods, and
  • No refund shall be allowed unless ALL four conditions listed in sec 8(4) are satisfied, and the Appellant could not have fulfilled the requirement in sec 8(4)(b) that presupposed that no tenant had been found for the Units since it has already secured tenants for the Units;
  • The tenants’ taking of possession of the Units gave them a sufficient degree of control so as to constitute occupation.
  • He disagreed with the Appellant’s argument that refunds ought that to be made during any period where rent was not collected, as this would open the vacancy refund scheme to abuse if owners grant their tenants long rent-free periods and backload the rent after the commencement of the lease.

Consequently, the Appellant filed an appeal to the Court of Appeal.

(For a summary of the High Court case, please refer to the TAX@SG article “High Court – BFC Development LLP v Comptroller of Property Tax – [2012] SGHC 237” dated 3 February 2013.)

Issues

  1. What was the Parliament’s rationale for providing for a refund in respect of vacant properties under the Singapore property tax legislation (“vacancy refund provision”);
  2. Was the High Court Judge correct in his interpretation of the term “occupation” as used in sec 8 of the Act; and
  3. The significance of the four conditions under sec 8(4) of the Act, and whether they were fulfilled during the Claim Period in the circumstances in relation to the Units.

Conclusion

The Appellant’s appeal was allowed.

The Court of Appeal ruled that Appellant was entitled to the vacancy refund under sec 8 of the Act as the Units were “unoccupied” during the fitting-out period for the purpose of sec 8 of the Act because the Appellant was not obtaining the beneficial use of the property for which it was intended, during the rent-free period. In addition, the tenants did not obtain beneficial use of the Units for the purpose of their businesses when the Units were undergoing fitting-out works.

The key points in arriving at the decision were as follows:

  • From past Parliamentary debates, it is clear that the vacancy refund was intended to grant relief to owners who genuinely intend to let out their properties, rather than keep the properties vacant for other reasons. In the Parliamentary speeches, there were no reference to the receipt of rent, but only to the property being unoccupied and provided there must have been a genuine procurement of a tenant for the property.  The reference to procurement of a tenant instead of receipt of rent in the Parliamentary speeches suggests that the Parliament recognised that a property could well be occupied and not generating rent for the owner. The Court of Appeal concluded that the underlying purpose of the vacancy refund scheme was to provide financial relief to an owner who is not able to reap the return for which his property was intended, through no neglect or unreasonableness on his part.
  • The Court of Appeal found that the term “occupation” should be construed to mean beneficial use for the purpose for which the property is intended. Possession per se should not be the basis to determine whether an owner would be eligible for property tax relief under sec 8 as a property, even when not unoccupied, would be under the possession of the owner. Therefore, to deny the owner the refund because he was in possession of the property would run counter to the object of the vacancy refund scheme.  The provision in sec 8(5) of the Act suggests that Parliament accepted that buildings undergoing works so that they could be used for the intended purposes, could not be put to beneficial use by anyone and therefore a lack of tenancy in such circumstances would be wholly expected and excusable.
  • The Court found that the Appellant had met the four conditions under sec 8(4) of the Act throughout the Claim Period as:
    • The Units were in good repair and fit for occupation as required under sec 8(4)(a) of the Act, when TOP was granted;
    • The Appellant had made reasonable efforts to secure tenants by enlisting the services of various estate agents, and by asking for a reasonable rent, thereby satisfying the conditions under sec 8(4)(b) and (c);
    • The securing of a tenant for the Units does not mean that the conditions under sec 8(4)(b) and (c) could not be satisfied. Once a tenant is found for a property, and where the tenant would only take occupation of it in a couple of months’ time, one cannot sensibly expect the owner to make any further effort to find another tenant to fill the gap period in order to literally satisfy the condition in sec 8(4)(b).

From past Parliamentary debates, it is clear that the vacancy refund was intended to grant relief to an owner of a building which was at all material times meant to be rented out rather than kept vacant for other reasons. Furthermore, it was stated in the second reading of the Property Tax (Amendment) Bill 1960 that the four requirements were intended to serve as “precautionary steps” to prevent an owner who kept his property vacant for other types of benefit, such as sale with vacant possession, from claiming the refund. In light of this, the four conditions should be understood as a specific mechanism prescribed by Parliament to differentiate between owners who genuinely intended to let out their properties and those who kept their properties vacant for other reasons. As such, the owner should still be entitled to claim refund for the gap period being used by the tenant to do fitting-out works.

The Court of Appeal also dismissed the High Court’s finding that allowing relief in respect of the fitting-out period might encourage the owner to “provide tenants with longer rent-free fitting-out periods in order to claim tax refunds while recouping the rent lost … by back-loading the rent after the [lease formally commences]”. It found the possible abuse of the vacancy refund scheme to be unlikely. A fitting-out period, by its very nature, must be relatively short and reasonable. When there is an abuse, the Respondent would no doubt react appropriately and refuse to grant a refund for the entire period claimed. Furthermore, the back-loading of rent could have the effect of raising the annual value of the property, thereby resulting in higher taxes for the owner.

The above judgement was delivered on 24 January 2014.

Comptroller of Income Tax v BJM [2013] SGHC 212

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28 October 2013

Revenue Law — International Taxation — Double Taxation Agreement Civil Procedure — Stay of Proceedings

Facts

On 22 November 2012, the National Tax Agency of Japan (“J-NTA”) issued a letter of request (“the Request”) to the Inland Revenue Authority of Singapore (“IRAS”) pursuant to section 105J of the Income Tax Act (Cap 134, Rev Ed 2008) (“ITA”) and Art 26 of the Agreement between the Government of the Republic of Singapore And the Government of Japan for the Avoidance of Double taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (“Singapore-Japan DTA”) for disclosure of various bank statements from the defendant bank, BJM. This related to on-going tax examinations in Japan in relation to the applicant, a Japanese national, and seven other account-holders.  IRAS reviewed the Request and made an ex parte application to the High Court for the following orders on 19 April 2013:

(a) That BJM produce within 21 days from the date of the Order all bank statements for the period 1 January 2006 through 31 December 2011 (both dates inclusive) in relation to eight accounts held by the account holders listed, including the specified accounts which they named in the summons itself;

(b) That BJM produce copies of the documents named in the summons to IRAS not later than the end of the period of 21 days from the date of the Order;

(c) Subject to the preceding sub-paragraph, no person is to inspect or take a copy of any document relating to these proceedings without leave of the High Court under section 105J(9) of the ITA; and

(d) That the Order shall have effect and remain in force until such Order is varied or discharged.

In the accompanying affidavit, IRAS set out the grounds of its application, exhibited the Request, and stated its belief that the Request set out all the information prescribed in the Eighth Schedule of the ITA and that the conditions specified in section 105J(3) were fulfilled.

IRAS also served BJM with notice of the application on 15 April 2013.

The Counsel for the applicant and IRAS appeared before the High Court four times in May 2013. The Counsel for the applicant submitted, inter alia, that the request was invalid as it was made pursuant to a tax examination and not investigations into tax evasion. The Counsel for the applicant also argued that the relevant tax authority in Japan had withdrawn its investigations into the applicant and that the J-NTA had no right to make the request in the first place as under Japanese law, the applicant would have no obligation to disclose equivalent information in Japan.

On 31 May 2013, the High Court granted the application (“the 31st May order”) on the following grounds:

  • The responsibility for determining whether a request for information is valid is primarily IRAS’s. The role of the Singapore Court is to be satisfied that the affidavit filed by the plaintiff in support of the application has complied with the ITA, and in particular, the Eighth Schedule. It is not the Court’s function and neither is it within the Singapore Court’s jurisdiction or competence to adjudicate on the purely domestic issues in the Japanese jurisdiction. In this case, the IRAS had stated its opinion that the Request was justified and valid (i.e. it was not a fishing expedition). The Court was also satisfied that the Request complied with the Eighth Schedule. In addition, it is not the place of the Singapore High Court to enquire into the propriety of the J-NTA request under Japanese law. Instead, Japan is the proper forum for determining whether the J-NTA request was proper.
  • The submission by the Counsel for the applicant that the Request pertained to a tax examination and not an investigation of tax evasion was, with respect, not a relevant consideration in determining whether to grant the application. There is nothing in the Eighth Schedule that suggests that a disclosure of the information requested is only permitted when there is an investigation into tax evasion. Different countries will have different mechanisms for investigating tax evasion. Information will be required at different stages. The Eighth Schedule requires a statement that the request is in conformity with the law and administrative practices of the country of the competent authority. The content of that statement will vary depending on the law and administrative practices of the country in question. There was such a statement in this case. The J-NTA made clear that the Request was for the purpose of potential tax evasions as the accounts requested for were under the control of the applicant’s family or companies controlled by the applicant’s family and were suspected of being used to hide undeclared income. This fulfils the requirements in the Eighth Schedule as well as the requirement of foreseeable relevance in Comptroller of Income Tax v AZP [2012] SGHC 112. Therefore, the argument about the stage of investigation was not persuasive.
  • The Counsel for the applicant did not produce any proof that the J-NTA had withdrawn its investigation into the applicant despite the fact that he had almost a month to ascertain this information with J-NTA. If it were the case that the information was no longer required, it would fall to J-NTA to withdraw the Request but IRAS had no information from J-NTA about this.

On 20 September 2013, the applicant filed a complaint against J-NTA in Japan.  Following this, the Counsel for the applicant filed a Summons No. 5041 of 2013 (“SUM 5041”) on 25 September 2013 to stay or discharge the 31st May order pending a determination of the issues of Japanese law before the Tokyo District Court.

Issue

Whether there are grounds to:

(a)    grant the application by the Counsel for the applicant for stay or discharge of the 31st May order pending a determination of the issues of Japanese law before the Tokyo District Court; and

(b)    permit the other account holders to intervene this suit.

Conclusion

The 31st May order stands and the application in SUM 5041 to stay or discharge the 31st May order is dismissed.  Summon Nos. 3108 to 3113 of 2013, relating to the application by the other account holders to intervene this suit were also dismissed.

The above decision was made based on the following:

(a)     The application to stay or discharge the 31st May order was characterised as a conflicts of law issue requiring resolution by the Japanese courts. This is, however, not an accurate characterisation as there is no pending suit in Singapore and no legal issue of Singapore law to be determined. The only issue of law to be determined is Japanese law. Thus, there are no grounds for stay of the 31st May order under common law conflicts of law principles.

(b)     There is no statutory basis from granting a stay or discharge of the 31st May order. The reasons for granting the 31st May order have been set out. But the Counsel for the applicant has not raised any points in SUM 5041 which he had not already made and which the Court had not already considered when making the 31st May order. As such, there are no grounds to discharge the order to make any variation to that order.

(c)     In light of the above, there are also no grounds to permit the other account holders to intervene. The accounts in question belong either to the applicant’s wife or to companies controlled by the applicant and his family. Their interests have been adequately represented by the applicant and the Counsel. There are no separate matters specific to the other account-holders which would affect the facts in this case and the decision of the Court.

The above judgement was delivered on 17 October 2013.

Comptroller of Income Tax v BJY and others [2013] SGHC 173

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26 September 2013

Revenue Law — International Taxation — Double Taxation Agreement — Exchange of Information

Facts

By way of a letter dated 12 September 2012, the Comptroller of Income Tax (“CIT”) received a request from the Central Board of Direct Taxes of the Department of Revenue of India (“the Competent Authority of India”) for certain information, documents and bank records from two banks, BJY and Bank 2, pertaining to BJX. The request was made pursuant to Art 28 of the Agreement between the Government of the Republic of Singapore and the Government of the Republic of India for for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on (“Singapore-India DTA”) that provides for the exchange of information (“EOI”) in relation to the administration of tax issues in Singapore and India.

While the CIT has various powers under the Income Tax Act (“ITA”) to obtain information for the purposes of EOI, the information requested by the Competent Authority of India, consisting of banking documents, was protected from unauthorised disclosure under section 47 of Banking Act (Cap 19, 2008 Rev Ed) (“Banking Act”).

Accordingly, the CIT made an application to the High Court under section 105J of the Income Tax Act (“ITA”) on 26 February 2013 for an Order for the two respondent banks, BJY and Bank 2, to release certain information, documents and bank records pertaining to the third defendant, BJX.

Issues

Whether the two conditions set out under section 105J(3) were satisfied in the application by the CIT. They are:

(a)   the making of the order is justified in the circumstances of the case; and

(b)   it is not contrary to the public interest for a copy of the document to be produced or that access to the information be given.

In addition, the following two considerations were pertinent in the Judge’s decision on whether the making of an order under section 105J was justified in the circumstances:

(a)   whether the information requested was foreseeably relevant; and

(b)   whether the information requested disclosed a trade, business, industrial, commercial or professional secret or trade process (“Business Secrets”).

Conclusion

The CIT’s application was allowed.

The Judge was satisfied that the making of Order was justified and not contrary to the public interest for the following reasons:

(a)   The Judge found that the EOI Request was not speculative, nor a “fishing expedition”.  The taxpayer under investigation, BJX, was clearly identified and the purpose of the EOI Request was also sufficiently elaborated upon.  There was also sufficient evidence to establish a connection between the tax investigations on BJX and the information in the Bank Accounts which would allow for the movement and amount of moneys transferred to be traced. Accordingly, the request met the standard of foreseeable relevance.

(b)   Despite the Counsel for BJX’s claim that the banking documents requested from BJY and Bank 2 were akin to customer and supplier lists, and therefore were trade secrets, the Judge found that they did not fall within the narrow scope of Business Secrets. Moreover, the confidentiality provisions relating to the disclosure of information apply.

(c)   The Judge was of the opinion that what constitutes public interest for the purposes of section 105J(3)(b) ought to be interpreted in a manner consistent with the Minister’s explanation during the Parliamentary Debates (at cols 1620–1621) and the OECD Commentary (at para. 19.5) which further explains this limitation with regard to EOI as only being relevant in “extreme cases”.  On the Counsel for BJX’s argument that the disclosure of trade secrets would constitute an infringement of the rights of BJX which is contrary to the public interest, the submission was found to be untenable.

The above judgement was delivered on 13 September 2013.