10 February, 2016
High Court decides on which categories of documents may be subject to discovery in relation to judicial review proceedings resulting from a request for the exchange of information between the Comptroller of Income Tax in Singapore and a foreign nation: — AXY & Ors v Comptroller of Income Tax [2015] SGHC 291 (Singapore, High Court, 4 November 2015)
Facts
The National Tax Service of the Republic of Korea (“NTS”) issued a request to the Comptroller of Income Tax in Singapore (“the Comptroller”) for the provision of information on the applicants’ banking activity in Singapore (“Request”) under section 105D of the Income Tax Act (Cap 134, 2008 Rev Ed) (“the 2008 Act”) and Article 25 of the Convention between the Republic of Singapore and the Republic of Korea for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income as amended by the Protocol (“the Treaty”).
The request was issued after tax investigations had commenced in Korea against the applicants, who were Korean nationals. Pursuant to the request, IRAS issued notices to various banks in Singapore under sections 65B and 105F of the 2008 Act (“the Notices”) for information on all banking activity within the accounts of the applicants and their companies from 2003.
The applicants applied for leave to commence judicial review of the Comptroller’s decision to issue the Notices, seeking a prohibition order against the Comptroller from disclosing any banking activity relating to the applicants to NTS, as well as a quashing order against the Notices issued (“OS [X]”). The Assistant Registrar (“AR”) had dismissed the applicants’ application to obtain production of 14 categories of documents (“the Documents”) for inspection (“Decision”) on the basis that the Documents had allegedly been referred to in an affidavit filed on behalf of the Comptroller. The applicants thus appealed against the AR’s Decision. At the same time, the Comptroller also applied to expunge the Documents from the court record and to destroy all copies of the same.
WongPartnership acted for the successful applicants.
Decision
The Court noted that, since the filing of the summons for discovery and by way of the Income Tax (Amendment) Act 2014, section 105HA had been
inserted into the current version of the Income Tax Act (Cap 134, 2014 Rev Ed) (“the 2014 Act”) to state that in the context of judicial review proceedings, the court shall not grant leave for discovery of the request issued by a foreign tax authority and related documents if the court was satisfied that the foreign tax authority had requested the Comptroller not to disclose the said documents to any person. Whilst the Court noted that this had effectively restricted the right of taxpayers to apply for discovery of documents relating to an exchange of information (“EOI”) in judicial review proceedings, it was not applicable to the present case because the application for judicial review was filed before the effective date of the amendment, and also because NTS no longer objected to the disclosure of the redacted copies of NTS-related documents.
The question before the court was therefore whether production of the Documents was necessary either for disposing fairly of OS [X] and/or for saving costs.
The Court noted that judicial review in the context of the present case should not be relied on to unnecessarily delay tax investigations commenced against the taxpayers, nor must it result in the foreign state being hamstrung in its investigations. The Court also noted that in determining the scope of discovery for a judicial review application, it should be mindful that Singapore court proceedings should not prejudice a foreign tax authority’s gathering of information for tax investigation purposes. It was not for the Singapore court to second-guess what the foreign tax authority was doing outside of Singapore.
The Court proceeded to consider each category of documents sought by the applicants in turn.
Application for the Request
The Comptroller objected to the production of the underlying Request on the basis that it was unnecessary for the Court to substantively review a request for information by inquiring into the truth of the factual assertions contained therein.
The Court held that it was necessary to disclose the Request for the court to determine whether the applicants had a prima facie case against the Comptroller at the leave to commence judicial review stage. The Request was the starting point from which the court could begin to assess the Comptroller’s exercise of discretion, and decide whether an arguable case had been made out on the facts. The Request also contained the reasons for the request of information by NTS, which would have further informed the subsequent exercise of the Comptroller’s discretion.
The Court also held that the Request was necessary to consider the context in which such a wide scope was put forth, and to examine the reasons provided by NTS to justify its scope. This may affect the court’s determination of the exercise of the Comptroller’s discretion pursuant to such a Request.
Application for the correspondence between NTS and the Comptroller
The Court disagreed with the AR and held that the applicants were not on a fishing expedition, given that they were able to pinpoint the exact dates of the letters exchanged. The Court agreed that such subsequent correspondence was necessary to demonstrate whether or not there was an arguable case that the Comptroller had not exercised its discretion independently.
The guiding principles provided in the Update to the OECD Model Convention and its Commentary on Article 26 suggest that only “minimum information” should be disclosed, since the underlying basis for such a principle was to prevent tipping off the taxpayers being investigated and the inherent concern was that the disclosure would “frustrate the efforts of the requesting state”. However, this was not a concern in the present case as NTS did not object to the production of the documents and the applicants were already aware that proceedings had been commenced against them.
Application for the Notices issued to the banks
The Notices were the subject of the judicial review and would contain the outcome of the Comptroller’s exercise of its discretion in reviewing the Request. Accordingly, the Court held that these Notices were relevant and necessary to decide whether the applicants had an arguable case of reasonable suspicion that the Comptroller had failed to exercise its discretion in an independent manner.
Application for documents relating to investigations in Korea
The Court held that these documents should not be disclosed as they related to the factual accuracy of the Request issued by NTS, and whether NTS had in fact pursued all available means in Korea to obtain the information requested except those that would give rise to disproportionate difficulties. The Court held that there was no need to second-guess what NTS had done in Korea.
Application for income tax returns
These documents were neither material to the present case nor necessary for the fair disposal of the matter. Whether or not a court agreed with the adequacy of the information relied on by the Comptroller was immaterial as, even if the information was inadequate, it did not necessarily follow that the Comptroller’s decision to issue the Notices was irrational, illegal or procedurally improper.
Application for EOI Review Committee documents
The Court held that these documents would relate to the internal procedures of IRAS which may be very sensitive in nature. It was not necessary for the fair disposal of the matter to order the production of these documents.
The Court held that the documents it had ordered to be disclosed could be subject to redaction if there were matters contained therein which were particularly sensitive. The remaining categories of documents were ordered to be expunged from the court record and copies of those documents were to be destroyed. The Court acknowledged the Comptroller’s concern that this case would create a bad precedent, but noted that this concern would fall away with the introduction of section 105HA of the 2014 Act and the ongoing global trend towards automatic exchange of information in tax returns. In future applications, requests made by a foreign tax authority and related documents would no longer be subject to discovery or inspection if the court was satisfied that the foreign tax authority had requested the Comptroller to keep the document confidential.
Our Comments / Analysis
The new section 105HA of the Income Tax Act states that in the context of judicial review proceedings, the court shall not grant leave for discovery of the request issued by a foreign tax authority and related documents if the court is satisfied that the foreign tax authority has requested the Comptroller not to disclose the said documents to any person. After proceedings in the present OS for judicial review had commenced, this section was inserted into the Income Tax Act to avoid requests for discovery of a similar nature.
This case further confirms that the processes of discovery and inspection underpin civil litigation, as these enable all relevant material to be placed before the other party and the Court to ensure a level playing field. In turn, it allows for the contest at trial to be open and fair. Unless there are express statutory provisions to the contrary, all material which is relevant and necessary ought to be disclosed to the other party and to the Court.
For further information, please contact:
Melanie Ho, Partner, WongPartnership
melanie.ho@wongpartnership.com
