AXY and others v Comptroller of Income Tax

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 04 May 2018
• Neutral Citation: [2018] SGCA 23
• Plaintiff Counsel: Tan Chee Meng SC, Ho Pei Shien Melanie, Lim Ying Min, Rachel Ong, New Xiao Yan Charmaine and Ngiam Heng Hui Jocelyn (WongPartnership LLP)
• Date: 04 May 2018
• Docket Number: Civil Appeal No 161 of 2016
• Hearing Date: 05 September 2017
• Subject Matter: Threshold for leave for judicial review,International taxation,Administrative Law,Judicial review,Exchange of information,Revenue Law
• Year: 2018
• Defendant Counsel: Aurill Kam and Fu Qijing (Attorney-General's Chambers),Koh Meng Sing Alvin, Li Yourui Charles, Nai Thiam Siew Patrick and Pang Mei Yu (Inland Revenue Authority of Singapore)
• Court: Court of Appeal (Singapore)
• Citation: [2018] SGCA 23
• Published date: 09 May 2018

Sundaresh Menon CJ (delivering the grounds of decision of the court): Introduction

This appeal arose in the context of an exchange of information (“EOI”) request (“the Request”) made by the National Tax Service of the Republic of Korea (“the NTS”) to the Comptroller of Income Tax (“the Comptroller”). The NTS had been investigating possible tax evasion involving the four appellants in this appeal (“the Appellants”), and had sent the Request to the Comptroller pursuant to Art 25(1) 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 signed on 24 May 2010 (“the Convention”). Further communications ensued between the NTS and the Comptroller over several months, in the course of which various clarifications were sought and obtained by the Comptroller, who then exercised his power to issue production notices to three banks in Singapore on 21 and 27 January 2014 for the disclosure of banking activities relating to three of the Appellants and 51 companies (“the Production Notices”). The entire EOI process, including the issuance of the Production Notices, was conducted covertly without notice to the Appellants and the companies concerned.

The Appellants filed Originating Summons No 106 of 2014 (“OS 106”) on 11 February 2014 seeking, among other things, leave to apply for a prohibiting order prohibiting the Comptroller from disclosing to the NTS the information which the latter sought and a quashing order in respect of the Production Notices. Having been served with the papers for OS 106 pursuant to O 53 r 1(3) of the Rules of Court (Cap 322, R 5, 2014 Rev Ed), the Attorney-General (“the AG”) participated in the proceedings to make submissions on the applicable legal principles governing the operation of Singapore’s EOI regime. The judicial commissioner who heard OS 106 (“the Judge”) dismissed the action on 15 September 2016, and furnished his written grounds of decision in AXY and others v Comptroller of Income Tax (Attorney-General, intervener) [2017] SGHC 42 (“the GD”) on 2 March 2017.

On 24 November 2016, the Appellants filed this appeal against the Judge’s decision. We heard the appeal on 5 September 2017 in camera. At the conclusion of the oral arguments, we dismissed the appeal and gave our brief reasons. As we indicated we would do, we now set out the detailed grounds for our decision.

This appeal raised the novel issue of whether subsequent objections and issues that were put forward to the Comptroller after he had made his decision on an EOI request would be relevant and admissible in judicial review proceedings directed at that decision, particularly in circumstances such as the present, where the EOI process was conducted covertly without notice to the persons and/or entities in respect of whom information was sought (referred to hereafter as the “persons of interest” where appropriate to the context). In these grounds, we also examine the scope of the Comptroller’s role and duties when assessing EOI requests from foreign tax authorities.

The factual background

The Appellants were, at the material time, a family of Korean nationals living in Indonesia. The first appellant (“the 1st Appellant”) is the father, the fourth appellant (“the 4th Appellant”) is the mother, while the second and third appellants (“the 2nd Appellant” and “the 3rd Appellant” respectively) are their sons. The 3rd Appellant is not a person in respect of whom information was sought by the NTS in the Request. The 1st Appellant owns a group of companies known as the “K Group”, which has ten subsidiaries in Korea and 30 subsidiaries in Indonesia. The 1st Appellant acquired Indonesian citizenship in April 2014 and is no longer a Korean citizen.

At the material time, the NTS was conducting criminal tax investigations into the affairs of five individuals (“the five Korean taxpayers”): the 1st, 2nd and 4th Appellants, and two other persons who were officials of the K Group. Specifically, the NTS suspected that the 1st Appellant was the beneficial owner of a number of Singapore-incorporated companies (“the Singapore Entities”) as well as related entities in the British Virgin Islands (“BVI”), the Netherlands, Hong Kong and Panama (“the Related Foreign Entities”). A total of 51 companies were implicated. The NTS suspected that the 1st Appellant had incorporated these 51 nominee companies (“the 51 implicated companies”) using the names of his family members (specifically, the 2nd, 3rd and 4th Appellants) as well as the names of various employees of the K Group as the directors and shareholders of these companies, and, through this scheme, had evaded tax on the investment income of these 51 companies even though he was their beneficial owner. From its investigations, the NTS had reason to believe that the five Korean taxpayers as well as these 51 companies had bank accounts in Singapore that were being used to conceal unreported income and evade taxes.

The Request from the NTS

On 23 September 2013, the NTS submitted the Request to the Comptroller to obtain information relating to the five Korean taxpayers and the 51 implicated companies. The Request was made pursuant to Art 25(1) of the Convention. Article 25 of the Convention, which is incorporated into our domestic legislation via s 105D of the Income Tax Act (Cap 134, 2014 Rev Ed) (“the ITA”), reads as follows: 1. The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Articles 1 and 2. 2. Any information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, the determination of appeals in relation to the taxes referred to in paragraph 1, or the oversight of the above. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. 3. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation: (a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State; (b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; (c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public). 4. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its information gathering measures to obtain the requested information, even though that other State may not need such information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of paragraph 3 but in no case shall such limitations be construed to permit a Contracting State to decline to supply information solely because it has no domestic interest in such information. 5. In no case shall the provisions of paragraph 3 be construed to permit a Contracting State to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person.

[emphasis added in bold italics]

Section 105D of the ITA also bears setting out in full:

Request for information

105D.—(1) The competent authority under a prescribed arrangement may make a request to the Comptroller for information concerning the tax position of any person in accordance with — (a) if it is an avoidance of double taxation arrangement, the EOI provision of that arrangement; or (b) if it is an EOI arrangement, the provisions of that arrangement. (2) Unless the Comptroller otherwise permits, the request must set out the information prescribed in the Eighth Schedule. (3) Every request shall be subject to and dealt with in accordance with the terms of the prescribed arrangement. (4) For the purposes of subsection (3), the terms of the prescribed arrangement shall not be construed in such a way as to prevent the Comptroller from complying with, or to permit him to decline to comply with, a request for information merely because — (a) Singapore does not need the information for its own tax purposes; or (b) the information is held by a bank or other financial institution, a nominee or a person acting in an agency or a fiduciary capacity, or it relates to the ownership interests in an entity.

[emphasis added]

It was not disputed by the parties that the NTS was a “competent authority” and the Convention, a “prescribed arrangement”, for the purposes of s 105D of the ITA.

In the Request, the NTS sought, in relation to the five Korean taxpayers and the 51 implicated companies, Singapore bank account information and documents, including bank statements, account opening contracts, personal information of agents and consignees, cancelled cheques,...