Indian tax probe turns to Guernsey

Indian tax authorities want a local trust company to divulge documents and information about its client as well as a British Virgin Island company and two trusts which they believe are being used to hide money.

The client is fighting against the release through the Guernsey courts, but lost the latest case.

The investigation was sparked by a leak of information of thousands of HSBC Swiss private bank accounts in 2008 by an employee who suspected the clients of evading tax.

Among the Income Tax Department’s analysis of the tax information request from India, it states: ‘from open source information it would appear that India received intelligence that [the applicant’s] extended family had circa US$53m. in hidden bank accounts in Switzerland. (this information being leaked via Wikileaks).’

Indian tax authorities raided the applicant’s business premises and home on 25 August 2011.

‘As a result of this search the Indians obtained evidence in support of the alleged, undisclosed accounts held with HSBC Bank, Geneva….’

Papers describe a ‘complex multi-layered web of trust and companies to conceal [the applicant’s] unaccounted income’ which is why the information about the BVI company and the applicant was being requested from Guernsey.

The court proceedings are the first time that a notice issued under a tax information exchange agreement has been challenged.

Guernsey’s TIEA with India has been in place since June 2012.

The latest hearing in the Ordinary Division of the Royal Court was in October, but the written judgment was only released this year.

The applicant wants a notice issued by the Director of Income Tax on 30 August 2016 set aside.

Deputy Bailiff Richard McMahon in his judgment rejected an argument by the applicant that the Indian request was not a criminal tax matter.

‘The possible offending that is the subject of the investigation into the Applicant has been shown through expert’s evidence to involve intentional conduct.

‘Accordingly, the time limitations in Article 14 of the TIEA in respect of anything that is not a criminal tax matter do not apply.’

He was also satisfied with how the Income Tax Authority had reviewed the request from India and that it had been made in accordance with the provisions of the TIEA.

Although he did say that Income Tax’s approach in dealing with India’s series of requests ‘has not been perfect’ and that it did take into account something that it should not have because of its belief that the material being requested would be restricted to the purpose for which it was originally sought.

But the judge decided that this would not have meant the respondent would have declined the Indian request.

‘I am clear that there was no basis for declining to assist the ITA. This is because foreseeable relevance linking to the investigation or prosecution of a tax matter had been established, as soon as that was established, the other terms of the TIEA were met and it was clear that the information sought by the December request was not available in India, and supplying the information would not be contrary to Guernsey’s vital interests or otherwise contrary to its public policy, there was no basis on which to decline to assist.’

He dismissed the applicant’s action so the notice to the trust company from 30 August 2016 stands.

A Revenue Service spokesman said that the Director of the Revenue Service is unable to comment on individual cases.

‘Guernsey’s commitment tax transparency is longstanding and has most recently been acknowledged in a report published in July 2018, the Global Forum on Transparency & Exchange of Information for Tax Purposes (“the Global Forum”) in which it was confirmed that Guernsey had continued to follow through its commitment, made in 2002, to observe the OECD principles on transparency and exchange of information for tax purposes. This report, which followed an earlier report in 2013, contains the findings and conclusions of the Second Round Peer Review Report on the Exchange of Information on Request, where Guernsey achieved an overall rating of Compliant (the highest rating).’

This report shows that between 2014 to 2016 Guernsey received 136 requests for the exchange of tax information - none of the requests were declined.

‘In line with any judgments handed down by the Royal Court concerning the operation of the Income Tax or Social Insurance Laws, the Director of the Revenue Service is in the process of reviewing the content to determine whether any refinements need to be made to current policies and procedures, which may require updating the EOI procedural manual, although as detailed in the judgment to which the enquirer has referred, the technical issue addressed in this case has no overall impact on Guernsey’s ability to continue to meet its commitments in relation to tax transparency.’