Harry Potter and the Request for Tax Information

TIEA Procedure

Ordinarily, pursuant to a TIEA request, the Assessor will exercise the powers to request information under the Income Tax Act 1970. In practice, the recipient in the Isle of Man, for example a bank or fiduciary services provider, will be issued with an initial ‘precursor letter’ requesting certain information and documentation believed to be in its possession or power. The precursor is required by law to provide the recipient with an opportunity to consider the request.

The precursor letter is not binding on the recipient and has no compulsion of law. If a bank or CSP were to comply with a request at this stage, they put themselves at risk of a claim for breach of confidentiality.

Following the precursor letter, the Assessor will issue a formal notice requiring the information and/or documentation to be provided within 30 days.

If the information is not provided within that timescale, the Assessor can apply to the Court for an order compelling the recipient to comply with the request. It is this procedure that was invoked in this case, although prior to the final hearing the parties reached an agreed settlement.

Wide ranging request?

In this case (Assessor of Income Tax v Holmcroft & otr (CHP 16/0024), although the Defendants did not disagree that the Assessor had the power to issue the request, they were concerned both at the broad scope of the request and to ensure that the Assessor had correctly assessed the accuracy and legitimacy of HMRC’s request.

Invisibility cloaks banned

In delivering his judgment and providing guidance in this increasingly significant area of law, His Honour The Deemster Doyle, First Deemster and Clerk of the Rolls, commented that, “the Isle of Man has now for many years recognised its responsibilities to the international community and cooperated with overseas authorities” (Paragraph 53).

In recent years, a number of judgments have affirmed that position and stressed that, in the Isle of Man, “there is no blanket concept of confidentiality to cloak irregular financial dealings” (Page 227; Tucker 1987-89 MLR 220), and that, “Those endeavouring to make use of the equivalent of Harry Potter’s invisibility cloak to prevent sight of information or documents regarding the proceeds of wrong doing will find, to their disappointment, that it does not work in this jurisdiction” (Deemster Doyle, Wine v Wine (judgment 29 May 2007, Paragraph 72)).

Further, Deemster Doyle has previously stated that, “there are no black holes where wrongdoers can hide in the Isle of Man” (Secilpar S.L 2003-05 MLR 352, paragraph 57).

No fishing allowed

Cases from Jersey , Singapore  and England  relating to the international exchange of tax information were considered, and OECD commentary discussed regarding definitions of “foreseeably relevant”, and confirming that information does not have to be provided in cases of “fishing expeditions” , being “speculative requests that have no apparent nexus to an open inquiry or investigation” (See paragraph 17-18 of the judgment).

Knockout blow

In summarising the position in Manx Law, Deemster Doyle states, at paragraph 127, that:

“The Island does not and should not shelter those who do not comply with the law and pay their taxes. The Island does not and should not facilitate wrongdoers attempting to evade tax in their home jurisdictions. We should assist others in ensuring that legal obligations, including the payment of tax, are complied with worldwide”.

The Assessor must in each case be satisfied that a request from a foreign tax authority, “falls within the relevant provisions” (paragraph 129). Clarification may be requested but “the effective provision of information must not be unduly prevented or delayed.”

Recipients of requests would need to produce evidence amounting to a “knockout blow” which seriously undermines the Assessor’s reasonable opinion, to resist a request for disclosure under a TIEA.

The Deemster warned recipients of the “adverse consequences that may follow if they do not provide prompt and full cooperation” (paragraph 132). These may include adverse costs orders, contempt orders and fines.

Challenges to requests

As noted above, businesses face difficulty in balancing compliance with the law and ensuring that their own position in terms of potential claims against them is protected. In addition, in an environment of ever escalating compliance requirements, the time and costs of responding to an information request can be onerous.

The view of the Court in response to such concerns is made clear, “Any misplaced feeling of loyalty to … clients or others and any commercial or business concerns must of course take second place to the requirement … to comply with the law. They should not raise unreasonable points … or invite the Assessor … to conduct unnecessary further enquiries” (paragraph 133).

As noted in the judgment, if a recipient is “in any doubt as to the legal position or the relevance of the documentation and information in its possession or power” he or she “should take legal advice” (paragraph 139).

Compliance with a request is not easy and each should be considered carefully and in detail. Reasonable queries may and should still be raised in appropriate cases and clarification requested where necessary. 

In a recent development, we await the decision of the Guernsey Court regarding a challenge of a decision by Guernsey’s tax director to grant a TIEA request from the Indian tax authority. Further case law is expected in this evolving area.

DQ’s Expertise

DQ has a specialist team with extensive experience of advising clients in relation to international tax, securities and criminal investigations, TIEA requests and multi-jurisdiction insolvencies in the Isle of Man and many other jurisdictions. For further information, please contact Annemarie Hughes, Sinead O'Connor or Adam Killip.