Offshore Finance Centres have long been termed "tax havens" and "secrecy jurisdictions". Is Jersey a secrecy jurisdiction or is it a jurisdiction committed to implementing international principles of transparency and information exchange?
The Organisation for Economic Co-operation and Development ("OECD") has, for a number of years, coordinated and led the implementation of an internationally agreed tax standard which requires the exchange of information on request in all tax matters for administration and, inter alia, the enforcement of domestic tax law. The OECD's efforts have been geared towards reducing the occurrence of money laundering, corruption and tax evasion through tax havens, the latter of which continue to attract interest. The unprecedented economic climate in which we find ourselves has prompted an increased focus on the offshore world, especially since it is reported that tax havens have cost governments billions in lost tax revenues in recent years.
There are a number of new and proposed measures intended to combat tax evasion, one of which is increased disclosure requirements which will inevitably impact not only on the tax payer individually but on, amongst others, local financial institutions and trustees.
There can be no doubt that Jersey is transparent in its affairs, having demonstrated a continued commitment to implementing the internationally agreed tax standard which has led to Jersey featuring as one of the jurisdictions recognised by the OECD as having substantially implemented the internationally agreed tax standard. In demonstrating its commitment, Jersey has in recent years entered into a number of bilateral tax information exchange agreements ("TIEAs"), most recently with Australia, Ireland and France.
It appears that requests for exchange of information under TIEAs have fallen in recent years notwithstanding that those agreements were intended to promote international cooperation. It is not clear why there have been so few requests for exchange of information under the TIEAs. Possibly, it is because other legislation provides a gateway for authorities seeking information, and so where investigating authorities require information in relation to an individual or corporate entity, they can request that information via alternative means such as the Investigation of Fraud (Jersey) Law 1991, for example, which the Attorney General may use himself to investigate a serious or complex fraud in Jersey or which may be used by the Attorney General at the request of a foreign investigating authority.
The Irish Revenue is one of the latest authorities to announce its investigation of the tax treatment of property, assets and funds settled by persons on trusts and offshore structures. The investigation commenced on 1 September. It was prompted by the Revenue's reported experience from other investigations that the use of trusts and similar structures represents a tax risk and because of new reporting obligations on third parties, including accountants, financial institutions and intermediaries in respect of settlements involving non-resident trustees. The Irish Revenue's investigation, like those which have preceded it, will focus primarily on those with undeclared tax liabilities in respect of transfers and settlements of property, assets and funds to trusts and offshore structures such as foundations and offshore companies.
HMRC has also announced two new initiatives. The first is a second tax amnesty offering those with offshore accounts the opportunity to get their tax affairs up to date. The New Disclosure Opportunity ("NDO") announced by HMRC will run until March 2010. If an individual or entity wishes to take advantage of the NDO, it must give notification of its intention to provide that disclosure by no later than 30 November. Once that notification has been given, full disclosure must be provided by 31 January 2010 if providing paper disclosure and by 12 March 2010 if providing electronic disclosure. To encourage individuals to disclose voluntarily, HMRC was also served mandatory disclosure notices on over three hundred UK and foreign banks operating in the UK in relation to individuals or entities with at least one UK address on record, requiring them to disclose information and documents in its possession or power regarding any non-UK accounts. The message is clear - if you do not disclose under the NDO, HMRC will find out.
The second initiative recently announced by HMRC is the Lichtenstein Disclosure Facility relevant to UK taxpayers with investments in Lichtenstein. There are certain differences between the two initiatives but in principal both are aimed at encouraging taxpayers to provide the necessary disclosure and get their tax affairs up to date. Whether voluntary disclosure should be provided will depend on the facts of each case. If in doubt, you should seek advice at the earliest available opportunity.
So, what should you do if you receive a request for disclosure of information from an authority outside of Jersey? The difficulty for local financial institutions, intermediaries and trustees is balancing the competing duty of confidentiality owed to the client in relation to whom information is requested with any duty to disclose. Naturally, there is a public interest in preserving confidentiality, a principle deeply rooted in common law, but so too is there a public interest in the free flow of information in appropriate circumstances.
There is no specific Jersey statute dealing with confidentiality and nor is there any statute which expressly criminalises any disclosures in breach of confidentiality. There is no doubt however that the duty of confidentiality owed to a client extends to not disclosing information to third parties unless one or more of the following exceptions apply:-
1. If compelled by law to disclose the information;
2. Where there is a public duty to disclose the information;
3. Where the interest of the party from whom disclosure is requested requires that disclosure be given; and/or
4. Where the customer has agreed to the information being disclosed.
In many cases, none of the exceptions above apply and disclosure might amount to a breach of confidentiality which could give rise to a claim for loss or damage suffered as a consequence of the disclosure.
Often an investigating authority will seek disclosure in reliance on its local laws. In circumstances where those laws have no binding effect in Jersey, the party in receipt of the request will have to ask itself whether any of the four exceptions above apply. Striking the balance between the duty of confidentiality and allowing regulators access to the information they require can be problematic. Where appropriate, advice should be sought so that you can determine if disclosure should be made whether it be voluntarily or in response to a specific request. If it is determined that disclosure should be provided, advice and assistance can then be given in managing that disclosure exercise and limiting any potential liability which might arise from the disclosure given.
Jersey has demonstrated that it is not a secrecy jurisdiction but rather a jurisdiction committed to implementing principles of transparency, cooperation and regulation. It supports the initiatives and measures aimed at improving where possible the implementation of the tax standard whilst not disregarding the common law principles of privacy and confidentiality deeply rooted in our common law.