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14 Oct 13 Court admits Cayman documents into evidence - Hua Wang Bank (No 7)

The Federal Court (Perram J) has admitted into evidence documents obtained by the Commissioner from the Cayman Islands Tax Information Authority ("CITIA") pursuant to the Agreement between the Government of Australia and the Government of the Cayman Islands on the Exchange of Information with respect to Taxes ("the Treaty").

The Treaty took effect from 1 July 2010, but only in respect of taxable periods beginning on or after that date.

The proceedings before Perram J involve various appeals by five taxpayers against decisions made by the Commissioner disallowing objections lodged by them against certain notices of assessment issued in respect of income years ranging from 2000 to 2007. An issue in the proceedings, which is yet to be decided, is the place of central management and control of the taxpayers. The Commissioner alleges that the central management and control of the taxpayers is located in Australia, whilst the taxpayers submit that their central management and control of the taxpayers is located outside Australia.

Specifically, three of the taxpayers submit that their place of central management and control is in Neuchâtel in Switzerland, being the place of residence of a Mr Peter Borgas, who is said to be the owner and controlling mind of the three taxpayers. The taxpayers have indicated that Mr Borgas will give evidence that he owns and controls all but one of the taxpayers through two entities formed in the Cayman Islands.

The documents in question relate to the two Cayman Island entities. Contrary to the submissions of the taxpayer, the documents suggest that it is an Australian resident, Mr Vanda Gould, and not Mr Borgas, who is the ulimate owner of the two Cayman Island entities. It is for this reason that the Commissioner sought to tender the documents.

The taxpayers argued that the documents had been obtained by the Commissioner in breach of the Treaty, because he intended to use them in proceedings relating to income years preceding those to which the Treaty applies. This argument was supported by the fact that on the business day before the proceedings before Perram J commenced, Quin J sitting in the Grand Court of the Cayman Islands set aside the decisions of the CITIA to provide the documents and to consent to their use in the proceedings. Quin J also ordered CITIA to write to the Commissioner seeking his undertaking not to divulge the documents in Court proceedings in Australia and demanding the immediate destruction or return of the documents to CITIA.

Although a letter to that effect from the CITIA was received by the Commissioner, the Commissioner did not give the suggested undertaking, and indicated that he did not propose to return the documents. Rather, as indicated above, the Commissioner sought to tender them as evidence in the proceedings. The taxpayers objected to the tender on a number of grounds, including that the documents were obtained in breach of the Treaty.

There were two requests for information made by the Commissioner under the Treaty. The first was made before the current proceedings were initiated and the second was made after the current proceedings were initiated. Both requests were explicit in seeking information relating to assessments after 1 July 2010. After examining the evidence, Perram J held that both requests were made by the Commissioner for the purpose of investigating matters after 1 July 2010, and not for the purpose of assisting with the current proceedings dealing with the earlier income years. The evidence was that it was only some time after the second request that the Commissioner (through his officers) "formed the desire to use the documents for the purposes of these proceedings..."

Perram J held, as a consequence, that the Commissioner’s acts in issuing the requests to CITIA were authorised by Article 5 of the Treaty and no breach of the Treaty was involved in their issue or in the way in which the ATO came into possession of the documents. Perram J further held that the fact that the Grand Court had quashed the CITIA's decision to supply the documents was a matter pertaining to the domestic law of the Cayman Islands and could have no effect upon the lawfulness of the ATO’s receipt or use of the documents in Australia.

The other grounds upon which the taxpayers relied were also dismissed. Accordingly, Perram J ordered that the documents could be tendered in evidence.

Hua Wang Bank Berhad v FCT (No 7) [2013] FCA 1020 (8 October 2013).

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