In March 2015, the government’s International Tax Authority issued notices to the Virgin Islands-registered companies Friar Tuck Ltd. and Quiver Inc., demanding that they produce information about their bank accounts and shareholders for the ITA to transfer to another jurisdiction that had requested it.
However, those notices from the ITA did not explain what jurisdiction was requesting the information or why the request was being made.
Such demands had been typical since the ITA was established in 2003 to help facilitate tax information exchange agreements with other jurisdictions — that is, until March 31, when High Court Justice Vicki Ann Ellis ruled that the ITA is obligated to provide VI-registered entities with “sufficient information” about the notices it serves on them.
The judgment — which was issued after Friar Tuck and Quiver Inc. filed an application for judicial review in March 2016 asking the High Court to determine whether the ITA’s notices were lawful — has overturned an aspect of the territory’s information exchange regime that existed for some 14 years, according to Harneys attorney Jonathan Addo, one of the lawyers who represented the companies.
“For many years [before Ms. Ellis’ judgment], the ITA’s practice has been to deny a recipient of a notice basic information as to the underlying request; the requesting state; the nature of the underlying investigation; the taxpayer involved; the tax period concerned and the foreign tax laws said to be applicable,” Mr. Addo wrote in a legal update about the judgment on Harneys’ website. “The ITA has used the shield of state-to-state secrecy to prevent the disclosure of any information to a recipient of a notice.”
But while Harneys touted the judgment as an added bulwark that will protect VI companies’ privacy, others in the industry pointed out that it may strain the ITA’s ability to comply with international information requests in a timely matter.
“The ITA is going to be under more pressure and time constraints to get responses for these requests,” said long-time financial services practitioner Kenneth Morgan, who is chairman of BVI Finance but stressed that he was not speaking in that capacity.
Officials at the ITA, which is headed by Director LaToya James, did not respond to inquiries about the judgment.
According to tax information exchange agreements government has signed, the ITA is supposed to facilitate information requests from other jurisdictions “as promptly as possible.”
History
After the ITA served its notices on Friar Tuck and Quiver Inc., attorneys for the companies wrote to the ITA in May 2015, expressing concerns about their inability to determine the validity of the notices, according to Ms. Ellis’ judgment.
However, the ITA maintained that the companies — which are named as shareholders of the Nevada-based Watson Pharmaceuticals Inc. in public United States Securities and Exchange Commission documents from 2009 — were required to comply with the notices, leading to the subsequent lawsuit filed in March 2016.
Ms. Ellis’ judgment states that during the March 20-21 trial, attorneys for Friar Tuck and Quiver Inc. argued that by denying entities basic information about why their confidential information was being requested, the ITA violated the common-law principle of “procedural fairness,” which maintains that individuals should be treated fairly under the rule of law.
The ITA, for its part, argued that the territory’s legislation doesn’t specifically require it to disclose information about the notices it serves on entities, and therefore it is not required to make such disclosures, according to Ms. Ellis’ judgment.
“Without having regard to the overall fairness of the procedures prescribed, the ITA’s position is that the information contained in the requests are confidential state-to-state communications which the ITA is not obliged to provide to the claimants under the terms of the [Mutual Legal Assistance (Tax Matters) Act 2003],” Ms. Ellis stated in her judgment.
In ruling in favour of the companies, Ms. Ellis stated that the ITA is required to provide them “sufficient information” — including the requesting jurisdiction, the tax period under investigation and the summary of the nature of the investigation — about its notices to determine whether they are valid.
However, Ms. Ellis stressed that “sufficient information” doesn’t mean that the ITA is required to provide all the information about a notice it serves on an entity.
“There can be no doubt that there are limitations on the duty to disclose information — for example, where questions of national security arise or where the information is inherently or statutorily confidential,” she stated, adding, “Indiscriminate disclosure runs the risk that nefarious scoundrels would be able to benefit from early notice of the status of an investigation, and through delay tactics frustrate the course of justice.”
Balancing rights
Mr. Addo told the Beacon that he thinks the High Court struck a proper balance between protecting the common-law right to procedural fairness while still allowing the ITA to perform its functions.
“In some jurisdictions, this case may have had a potential for knee-jerk, where a judge would potentially go too far and prevent the public body from carrying out its functions in any way [by requiring indiscriminate disclosure],” he said. “But what this does is show that we’re a sophisticated and mature jurisdiction that’s keen to observe its international obligations, but is also keen on protecting its people.”
And while the judgment may require the ITA to more closely scrutinise the roughly 500 information requests it receives on a monthly basis, Harneys partner Colin Riegels said he expects that government should be able to adjust accordingly.
“Because the court’s suggesting the ITA needs to commit more resources to scrutinising these things, … they’re going to be looking for other ways to streamline their review processes and access data in ways other than [tax information exchange agreements],” he said. “I’d be surprised if we don’t see some more medium-term changes coming out of this as to how this works, because the way [the ITA is] doing things is not going to be consistent with the way they’ve been told to do things going forward.”
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