India requested that a Guernsey-based trust company share documentation regarding one of its clients.
A British Virgin Island’s company and two trusts have also been approached about the matter.
The unnamed client (X) has repeatedly fought the application made to Guernsey’s Income Tax Department, but lost in the latest hearing.
This marks the first time a Tax Information Exchange Agreement (TIEA) has been legally challenged, Guernsey’s deputy bailiff said, according to court documents seen by International Adviser.
The investigation was triggered by a Wikileaks revelation regarding thousands of private bank accounts held by Indian clients of HSBC Switzerland in 2008.
The court case
According to the deputy bailiff, Guernsey law is authorised “to provide documents and furnish information which are in the recipient’s possession or power, and which, in the opinion of the competent authority are, or may be, relevant to an inquiry into the liability to tax of any taxpayer, including giving assistance to another jurisdiction”.
This also falls under the TIEA provisions between Guernsey and India.
X disagreed and argued that the application was “outside the powers conferred” by the TIEA and the law.
Additionally, the time period mentioned in the request – all the way back to 1999 – went beyond what the agreement requires, as there was also no certainty it would involve a criminal tax matter.
Guilty until proven innocent
But the court ruled against X, as the TIEA between the two jurisdictions states that “this element is presumed to exist unless and until it is disproved by the accused”.
It was, therefore, up to X to prove they didn’t undertake any criminal activity through the Guernsey trust, which was not achieved in court.
As a result, the deputy bailiff found the application from the Indian authorities to be compliant with Guernsey law and the TIEA, so he ruled against X.
A spokesperson for Guernsey’s Revenue Service told International Adviser: “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.
“Although, as detailed in the judgment, 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.”