Professor Rose-Marie Belle Antoine examines disclosure initiatives for tax purposes in IFCs and calls for proportionality, balance and fairness in approaching these new tax transparency initiatives.
We have witnessed emboldened new initiatives geared towards compelling offshore financial centres to enter into radical arrangements that aim at full disclosure of information and the desecration of financial privacy. Offshore financial regimes have been challenged for some time now, given their successful role in equalising global revenues, often, though not exclusively, through efficient, innovative tax competitive regimes. However, the current transparency imperative is perhaps the greatest blow, especially the emerging concept of tax transparency, particularly when applied to the transnational sphere. The path to tax transparency has been through a concerted and continuous international effort to erode (some may say annihilate), the principle of financial confidentiality.
The first attempt challenged the very legitimacy of the confidentiality principle in transnational financial affairs, a very high threshold to cross considering the established usages of this principle in varied areas of commerce, including patent protection, data protection, restrictive covenants in employment law and anti-trust law. Yet, the OECD and powerful nations such as the US, France and Germany succeeded in what was in effect, a propaganda war against offshore jurisdictions, black-labelling them as conduits for money-laundering and financial crime, never mind the fact that anti-money laundering laws in offshore jurisdictions were often more advanced that those onshore and that the largest international financial crime scandals occurred, not in offshore nations, but in the onshore financial world, as the Madoff, BCCI examples and even the financial outrages that catapulted the 2008 global recession, demonstrated. Further, the now discredited notion of ‘harmful or unfair tax competition’ was promoted and genuine considerations of comity ignored.
As I have consistently argued, this notion of financial transparency had little or nothing to do with concerns about corporate crime, despite the loud noises from onshore countries, some of which, like the USA, themselves harbour what I have labelled ‘onshore-offshore’ sectors within their own borders. Similarly, the attacks on confidentiality and the trust toward transparency was never based on genuine concerns about violations of legal concepts or principles. Indeed, the offshore sector has been fastidious about promoting their essentially developmental objectives within a legal framework that emphasises well established, internationally recognised legal principles, such as the traditional rules of confidentiality that attach to the common law trust, and the rule in revenue law that no country enforces the tax laws of another, thereby justifying confidentiality in that context. This was a challenge based solely on the threat posed by offshore successes to onshore nations in terms of harnessing investment revenue, revenue which many will argue is truly transnational in nature and belongs to no single country.
In fact, it was precisely because of these legalistic rationales which are entrenched in the offshore financial sector, that the onshore propaganda, although succeeding in defaming offshore jurisdictions, did not succeed in bullying courts, even those onshore, and other authorities into surrendering the well respected norms, such as financial confidentiality, that exist therein. What offshore jurisdictions could not, nor would not do, therefore, was to fly in the face of these established legal principles and their policy objectives to surrender protected confidentiality obligations. Nonetheless, offshore jurisdictions continued, as they had always done, to cooperate fully where there was genuine suspicion of financial crime, respecting procedural rules of international legal assistance, such as the rule against fishing safeguard, prohibition of dual criminality and the like, but utilising already existing avenues within confidentiality statutes which gave authority for disclosure in such circumstances.
That this was not sufficient to stem the onslaught by onshore jurisdictions was simply because the real objective was collecting tax revenue. The crux of the matter is that onshore countries were really interested in information for tax purposes, an objective that they could not legitimately pursue. The law and universally accepted legal principles were on the side of offshore jurisdictions on the question of the appropriate boundaries of the confidentiality norm, particularly within the international legal architecture.
This, therefore, is what set the stage for our current situation which deifies tax transparency. Onshore countries simply utilised economic and political clout, through the vehicle of the OECD, to force change in a dynamic that was, and continues to be, at odds with still existing and accepted legal paradigms and creates a double standard. Thus, the notion of the tax exchange of information Agreement (TIEA) turns the principle of the non-extra-territorial application of fiscal law, or the non-enforcement of foreign fiscal law, on its head, in its ability to compel through agreement (an oxymoron in of itself) offshore nations to disclose information for onshore tax purposes via treaty arrangements. This is the most potent weapon used against offshore jurisdictions thus far and is a self-imposed international tax regulatory regime, utilising the umbrella of the OECD and G20 fora. In truth, offshore states have been victims of a hostile takeover where they have been forced to sell their birthright with little or nothing in return.
Even more removed from appropriate legal norms is the FATCA regime, where foreign banks are compelled to automatically transmit information on bank accounts held by US residents or citizens. While this is not a direct tax transparency vehicle and beyond the scope of this paper, it is certainly targeted at information for tax collection purposes. Both of these invasive initiatives therefore, are really techniques to override universally accepted legal norms in order to target offshore financial centres, albeit cloaked in universal garb. Quite simply, the impact of a TIEA on an onshore nation, where offshore jurisdictions are not desperately seeking information, is not the same. There is no doubt that the overreaching effect of TIEAs disproportionately impact offshore jurisdictions.
Apart from the substantive changes that have been made via treaty and bilateral Agreement to traditional, accepted rules of international and domestic tax and banking law, the TIEA and FATCA regimes unleash time-consuming, complex and costly administrative regimes on offshore states.
The playing field has therefore changed dramatically. Yet, I am of the view that good law and legal policy is not so easily sacrificed at the altar of unilateral revenue collection, even if by powerful onshore states. There are important jurisprudential rationales for the international tax norms promoted by offshore jurisdictions that have existed from time immemorial and which repel disclosure in financial affairs across borders as a matter of routine quite appropriately. For example, quite intriguingly, the USA has re-discovered in recent times, that the principle of financial confidentiality is both a friend and a foe. It has been a dangerous and of course, hypocritical game to so denigrate it because of offshore gains. Now, however, the principle is being lauded in a spate of anti-trust cases in the US, targeting Chinese competitors. Inconsistencies in application in this sector as compared to the offshore sector must be noticed. Oh, what a tangled web we weave . . . 
Similarly, TIEAs cannot override entrenched rules against fishing. In fact, these rules are specifically preserved under the model Treaty.
Notably, a decision to disclose information for tax purposes under a TIEA is subject to judicial review by the courts. Consequently, the interpretation of not only procedural safeguards, but also substantive concepts of law embodied in the treaty, is subject to judicial evaluation. Here is another minefield for litigation. The cracks in such overreaching treaty machinations are beginning to be revealed in the interpretation of key concepts and how the treaty is to be implemented. For example, interpreting the treaty and resultant domestic incorporating legislation has already begun to demonstrate some perhaps unforeseen procedural limitations or safeguards in the interest of due process. In Bunge v The Minister of Finance,  for instance, a Bermudan court held that the subject of a treaty request has the right to receive notice and information about the request details, in the interest of fairness.
One significant interrogation into treaty concepts relates to the meaning and import of ‘beneficial ownership’. In fact, the attempt to recalibrate this well-known legal concept by placing more emphasis on usage and enjoyment of income as opposed to contractual or legal obligations, has not gone unnoticed and has been criticised. The notion of ‘ownership’ here is a question of law and the Commentary to the Model TIEA itself acknowledges that the treaty does not seek to “develop a common “all purpose” definition of ownership among Contracting Parties”.
Already, the courts in Switzerland, in an important line of cases, have assessed this concept and found in favour of offshore protections, despite evident intentions by the framers of the Model Treaty to go where ‘no man has gone before’ and reach investors who are legitimately insulated according to universal principles of law. The Swiss courts accepted that the concept of ‘beneficial owner’ speaks to the economic reality of the relationship based on a substance over form approach, but emphasised that each case must be judged on the merits and that legal form could not be ignored in such cases.
Another important change to be noted in the TIEAs is the abolition of dual criminality requirements. Offshore jurisdictions will therefore no longer be in a position to follow this traditional rule in private international law which hitherto prevented international legal assistance if the offence for which assistance was requested did not exist, or was not recognised in the requested state. In terms of tax this was a serious obstacle since in some offshore countries, such as the Cayman Islands or The Bahamas, tax offences did not even exist because no one paid taxes, hence making requests for assistance in tax offences incompatible with domestic law. Such changes are supplemented by obviously needed provisions that override statutory confidentiality protections.
It is also apparent that the incorporation of TIEAs into domestic law has not been uniform, leading to even more variations of interpretations of the model treaty in the future. In Singapore, for example, s. 49 of the Income Tax which incorporates the treaty contains a notable difference in that there is a provision which mandates the Comptroller of Taxes (the competent authority) to apply to the High Court for an order that the requested disclosure is justified within the parameters of the treaty and is not contrary to the public interest. This arguably widens the scope of exceptions envisaged under the model treaty and places the discretion to disclose in the hands of an intermediary, the Court, and not the competent authority. It is also unclear how the concept of ‘public interest’ will be measured against the ‘public policy’ exception under the Model TIEA. Similar questions relate to the exceptions for national security, as seen in the Bahamas version of the treaty legislation.
Apart from the procedural and substantive question-marks that attach to the interpretation of TIEAs, it is important to note also as a general principle, that these treaties do not constitute carte blanche arrangements for the exchange of tax information. Information is not automatic, but only upon request, with a discretion residing in the offshore authority, which will be determined according to a test of foreseeable relevance to the enforcement of the tax matter in issue. It is a wide test but is subject to assessment on objective terms. The test was explored by the courts of Jersey in the case of Volaw v Comptroller of Customs. Here it was explained that reasonable grounds that a breach of foreign law had occurred must be identified before disclosure could be granted. In this case the fact that the subject in question had already been indicted was sufficient.
Tax transparency remains a relative term, loaded with developmental tensions. Powerful onshore nations have historically offered tax incentives to high worth individuals wanting to migrate to their shores, or simply provided financial services for such persons. Developing countries, many of whom are now offshore countries, have historically been disadvantaged because of this ‘asset drain’ from their own shores, but have had neither the mechanisms nor the political clout to prevent such transfer outflows, nor to force arrangements that will make these leakages transparent. The playing field remains uneven.
Is the offshore environment much more difficult for legitimate investors wanting to obtain lawful tax and other benefits to manoeuvre? Certainly it is. Yet, core principles of good law remain and will be utilised as these shiny new onshore revenue earning instruments are implemented. There is not, nor ever was, any room for fraudsters, money-launderers and criminals in the offshore sector, but the broad, lawful objectives of the sector remain feasible and in truth, are no different from the objectives of onshore countries.
What is required, as the cases are beginning to demonstrate, is proportionality, balance and fairness in approaching these new tax transparency initiatives.
 See Rose-Marie Antoine, Confidentiality in Offshore Financial Law, Oxford University Press, UK, 2nd ed, 2014, for a description of these in states such as Delaware, Colorado, Atlanta, etc.
 In fact, the details of beneficial owners are no less confidential in the orthodox onshore trust than they are in offshore trusts.
 See, e.g. Tiffany (NJ) LLC & Tiffany and Company v OI Andrew, Ga Gong et al 276 FRD 143 (2011).
 MODEL AGREEMENT ON EXCHANGE OF INFORMATION IN TAX MATTERS (Model TIEA).
 (Unreported) No 472 of 2012 (Sup Ct, Bermuda), dec’d March 13, 2013, para 17.
 See J Avery Jones, ‘OECD Discussion Draft, ‘Clarification of the Meaning of ‘Beneficial Owner’ in the OECD Model Tax Convention – Response by John Avery Jones, Richard Vann and Joanna Wheller. See also Rose-Marie Antoine, Trusts and Related Tax Issues in Offshore Financial Law, Oxford University Press, 2nd ed, 2013, for an in-depth discussion as to how this revised interpretation relates to the taxation of trusts.
 See Para 50 of the Commentary to the Model TIEA.
 See, e.g. Decision of the SFAC A-5974/2010 of 10 January 2011.
 Under Article 5.
 See, e.g. In re H  CILR 237.
 See Article 4 of the Model TIEA.
 See Article 1 of the Model TIEA.
 Note, however, that in In June 2015, the OECD Committee on Fiscal Affairs (CFA) approved a Model Protocol to the Agreement which may be used by jurisdictions if they want to extend the scope of their existing TIEAs to cover the automatic and/or spontaneous exchange of information, in accordance with the Common Reporting Standard or the automatic exchange of Country-by-Country Reports on a TIEA, in particular in cases where it is not (yet) possible to automatically exchange information under a relevant Multilateral Competent Authority Agreement.
  JRC 95.
Professor Rose-Marie Belle Antoine
Dean of Law