An Australian court has defied a Cayman judgment that tax information unlawfully handed over by the Cayman Islands Tax Information Authority should be returned and not used in Australian tax evasion proceedings.
An Australian federal court allowed the use of the contentious documents in a AU$30 million (CI$23 million) tax case, despite a Sept. 13 Cayman Islands Grand Court ruling.
Australian federal court judge Nye Perram said the ruling of the Cayman Islands Grand Court to quash the decision of the Tax Information Authority to send the information to Australian tax authorities is a matter of domestic Cayman law and can have no effect on the lawfulness of the Australian Taxation Office’s receipt of that material.
In his Oct. 9 ruling, Justice Perram stated that tendering the documents in the Australian proceedings “might be an offense under the laws of the Cayman Islands,” but he nonetheless granted an application for the use of the documents as evidence in the Australian tax case.
According to the Grand Court judgment, the Tax Information Authority had unlawfully passed on the taxpayers’ information in response to a request by the Australian Taxation Office on the basis of a tax information exchange agreement with Australia.
The Tax Information Authority had failed to ensure that the information sought by the taxation office related only to tax years and taxable periods after July 1, 2010, as stipulated by the tax information exchange agreement. The TIA also had no authority to consent to the use of the documents in foreign proceedings without applying to the Grand Court for directions.
This, together with the failure to notify the parties subject to the information request, had infringed their rights to privacy, as well as to a fair and public hearing under the Cayman Islands Bill of Rights, the Grand Court ruled in September. Grand Court judge Charles Quin ordered the Tax Information Authority to write to the Australian Taxation Office demanding the return of the files and revoking its consent for use of the documents in court proceedings.
The Australian Taxation Office received such a letter from the TIA, but decided to ignore the demands. “The [ATO] commissioner has not given the suggested undertaking, does not propose to return the documents and, to the contrary, now seeks to tender them,” Justice Perram explained in his decision.
The Australian tax authority made the information requests to determine whether two Cayman companies, M.H. Investments and J.A. Investments, were the ultimate owners of four entities pursued in Australian courts for an AU$30 million tax bill on profits from trading shares listed on the Australian Stock Exchange.
The four entities are Samoan-licensed bank Hua Wang Bank Berhad, Bahamas-based Bywater Investments and British companies Chemical Trustee and Derrin Brothers Properties.
The taxpayers made an application to the Australian court to suppress the publication of the documents in the case. They argued that the non-publication was necessary to prevent prejudice under the Australian Federal Court Act “in relation to national and international security” and “to protect the safety of any person.”
The federal court rejected the argument that accepting the documents as evidence would hamper the relations between Australia and the Cayman Islands or that it would be a matter of national and international security interests.
“It is possible that the tender of [the documents] might cause some chilling of the relationship between the [Australian Taxation Office] and [Cayman Islands Tax Information Authority],” Justice Perram wrote. “It is equally possible that it might not. One simply does not know. Accordingly, I cannot be satisfied that the tender ‘would’ prejudice the international relations of Australia.”
The court also did not support the claim that the tender of the documents in the case would be an offense under the Cayman Islands Confidential [Relationship] Preservation Law and that the ATO staff and lawyers would be exposed to risk of incarceration should any of them decide to visit the Cayman Islands.
“There is no evidence that any of those persons is planning to travel to the Cayman Islands, so there can be no necessity for the order even assuming everything else in the taxpayers’ favor.”
The court held that no contempt was involved in obtaining the documents from the Cayman Islands, nor in using them in court proceedings.