AXY and others v Comptroller of Income Tax

• Jurisdiction: Singapore
• Judge: Edmund Leow JC
• Judgment Date: 04 November 2015
• Neutral Citation: [2015] SGHC 291
• Plaintiff Counsel: Melanie Ho, Charmaine Neo and Jocelyn Ngiam (WongPartnership LLP)
• Docket Number: Originating Summons No [X] (Registrar’s Appeal No [Y] and Summons No [Z])
• Date: 04 November 2015
• Hearing Date: 23 July 2015,15 May 2015,15 July 2015
• Subject Matter: Civil Procedure,Administrative Law,Judicial review,Discovery of documents,Application
• Year: 2015
• Citation: [2015] SGHC 291
• Defendant Counsel: Patrick Nai and Pang Mei Yu (Inland Revenue Authority of Singapore, Law Division)
• Court: High Court (Singapore)
• Published date: 12 November 2015

Edmund Leow JC: Introduction

The exchange of information (“EOI”) between tax administrations is a key aspect of global cooperation in the fight against tax evasion and the protection of the integrity of tax systems. The contemporary framework of the exchange of information between countries is a controversial and oft-debated topic, especially in the light of how it has evolved in recent years. In this case, the National Tax Service of the Republic of Korea (“NTS”) had issued a request dated 23 September 2013 to the Comptroller of Income Tax in Singapore (the “Comptroller”) for the provision of information on the applicants’ banking activity in Singapore (“Request”) under s 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”). This Request was issued after tax investigations had commenced in Korea against the applicants who are Korean nationals. Pursuant to the Request, the Inland Revenue Authority of Singapore (“IRAS”) issued notices to various banks in Singapore under ss 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 to the date of the letter.

The applicants had applied for leave by way of Originating Summons No [X] (“OS [X]”) 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, and a quashing order against the Notices issued. Registrar’s Appeal No [Y] (“RA [Y]”) was filed by the applicants after the assistant registrar (“AR”) had dismissed the applicants’ application in Summons No [U] (“SUM [U]”) to obtain production of 14 categories of documents (“the Documents”) for inspection. These documents had allegedly been referred to in an affidavit filed on behalf of the Comptroller. Summons No [Z] (“SUM [Z]”) was the Comptroller’s application to expunge the Documents from the court record and to destroy all copies of the same. I dealt with RA [Y] and SUM [Z] concurrently as they were essentially mirror images.

The specific question that had to be answered in this case was whether production of the Documents was necessary either for disposing fairly of OS [X] and/or for saving costs. After hearing both parties and perusing the affidavits, I allowed RA [Y] in part and SUM [Z] in part. I now outline my reasons for allowing the appeal in part, and take the opportunity to consider the interesting and contemporary issues which this case has raised concerning the international tax cooperation framework, in particular, how judicial review in the context of the exchange of information between countries raises important public policy considerations.

Background to the current proceedings

In response to the filing of OS [X], the Comptroller filed the affidavit of Ms Wai Yean Tze (“Ms Wai’s First Affidavit”) on 2 April 2014 and served it on the applicants. However, the copy of Ms Wai’s First Affidavit that was served on the applicants were missing certain exhibits as compared to the copy that was filed in court (via upload onto eLitigation), namely, the documents exhibited in “WYT-3”, “WYT-5” and “WYT-7” (“the Missing Exhibits”). The applicants thus obtained the Missing Exhibits by downloading a copy of Ms Wai’s First Affidavit from eLitigation, and promptly proceeded to file Summons No [W] (“SUM [W]”) on 2 May 2014 for, inter alia, leave to use and refer to those exhibits. The Comptroller also filed Summons No [V] for proceedings to be held in camera and a sealing order. Lee Kim Shin JC (as he then was) heard both summonses concurrently and ordered that Ms Wai’s First Affidavit, as uploaded onto eLitigation, be expunged with leave given to the Comptroller to file a fresh affidavit in lieu of the expunged affidavit. The applicants were also ordered to immediately destroy all hard copies and any electronic copy of the full version of Ms Wai’s First Affidavit which contained the Missing Exhibits. Ms Wai’s First Affidavit was thus expunged and the Comptroller filed a fresh affidavit of Ms Wai Yean Tze on 21 August 2014 in lieu of the expunged affidavit (“Ms Wai’s Second Affidavit”).

Although Ms Wai’s Second Affidavit did not contain any of the Missing Exhibits, it did make reference to some of those documents. SUM [U] before the AR was thus the applicants’ application for discovery of the documents contained in the expunged affidavit and more. The applicants appealed the AR’s decision to dismiss SUM [U] and, as mentioned in [3] above, I allowed the appeal in part. Before proceeding to my reasons for doing so, I am of the view that it is helpful and instructive to consider the context in which the proceedings had been commenced, with a focus on the international context of the exchange of information between countries for tax purposes.

Context in which the proceedings had been commenced

It is an age-old and universally recognised principle that one sovereign does not assist another in the collection of their taxes. The gathering of information by one state for another to enforce the latter’s taxes was also consequently limited. But the political sentiment in many countries has changed radically over the years in the light of increasing tax evasion. The imbalance between unprecedented liberalisation of national economies and the relatively confined administration of tax systems to their respective national jurisdictions enabled the concealment of offshore assets and income by taxpayers. Bank secrecy laws were originally imposed as a restriction on banks from misusing customer information, but banks started to make use of the same laws as a marketing tool to promote their business to taxpayers in other countries who wished to conceal their assets. This practice by some banks became highly controversial, particularly after the global financial crisis, as the same banks which had been on the verge of collapse and had been rescued by their own governments, then ironically assisted taxpayers to evade tax obligations to their very own governments that had rescued them, and who had even become their main shareholder. The revelation of such banking practices had a huge impact on public opinion in the western countries on bank secrecy laws.

Fuelled by the political discontent that such practices generated over time, the impetus to improve transparency and cooperation between tax authorities to clamp down on tax evasion increased. Countries started to insert EOI provisions into Avoidance of Double Taxation Agreements (“DTAs”) which serve to prevent double taxation of income earned in one jurisdiction by a resident of the other jurisdiction. Prior to the financial crisis, western countries had already adopted EOI provisions into their DTAs but after the financial crisis, increased political pressure on other countries led to them similarly adopting EOI provisions into their DTAs. The exchange of information is crucial in allowing countries to obtain the necessary information on the offshore assets of their taxpayers to enable them to investigate possible allegations of tax evasion properly. Hence nowadays, countries assist others in conducting investigations and collecting information within their jurisdiction with a view to assisting another country in administering or enforcing its domestic tax law. Similarly, the Treaty signed between Singapore and Korea includes a provision on the exchange of information (Article 25 of the Treaty) which follows Article 26 of the Organisation for Economic Co-operation and Development (“OECD”) Model Convention with respect to Taxes on Income and on Capital (“Model Convention”), as an international standard on the exchange of information.

Article 26 of the Model Convention has not remained static in its form; its amendments reflect the evolution of the principles of transparency and exchange of information for tax purposes over time. For example, in July 2005, the obligation for tax authorities of Contracting States to exchange information was amended from what was merely “necessary for carrying out the provisions of this Convention” to what was foreseeably relevant. Additional obligations were imposed on Contracting States, which compelled the requested State to use its information gathering measures to obtain the requested information even though the requested State may not need such information for its own tax purposes, and even if the information was held by a financial institution, or a nominee or person acting in an agency or fiduciary capacity. Effectively, this curtailed limitations imposed on the obligation of Contracting States to use information gathering measures to obtain the requested information for another Contracting State. Though the commentary to Article 26 appears to state that the amendments made to the Article were largely to “remove doubts as to the proper interpretation of the Article” it was recognised that changes were made “to take into account recent developments and current country practices”. Singapore did not initially adopt the standard set out in Article 26 as it was promulgated by the OECD, of which it was not a member, and the standard was not an internationally recognised one at that time.

Following the endorsement of Article 26 of the 2008 OECD Model Convention as an internationally agreed standard for the exchange of information for tax purposes (the “Standard”) by the United Nations Committee of Experts on International Cooperation in Tax Matters in October 2008, Singapore decided to endorse the Standard in March 2009 “in keeping with our role as a trusted international financial centre and a responsible jurisdiction”...