APPLICATION TO SET ASIDE PRODUCTION ORDER UNDER INTERNATIONAL COOPERATION (TAX INFORMATION EXCHANGE AGREEMENTS) ACT 2005 – WHETHER PLAINTIFF FAILED TO MAKE FULL AND FRANK DISCLOSURE – WHETHER REQUEST WAS ADEQUATELY PARTICULARISED – WHETHER INFORMATION REQUESTED WAS FORESEEABLY RELEVANT – WHETHER INFORMATION REQUESTED REPRESENTED A TRADE, BUSINESS, INDUSTRIAL, COMMERCIAL OR PROFESSIONAL SECRET OR TRADE PROCESS – WHETHER COURT WAS REQUIRED TO BE SATISFIED THAT REQUESTING STATE WOULD COMPLY WITH ITS TREATY OBLIGATIONS TO KEEP THE REQUESTED INFORMATION CONFIDENTIAL – WHETHER FORM OF THE PRODUCTION ORDER WAS DEFECTIVE
This was a judgment on the defendant’s application for review of a Production Order made by the Court in January 2017 under Section 5(2) of the International Cooperation (Tax Information Exchange Agreements) Act 2005 (“the 2005 Act”). The application for the Production Order was made by the plaintiff (the Minister of Finance) on the request of a state Tax Authority under Bermuda’s Tax Information Exchange Agreement (“the Agreement”) with the Requesting State. The right of review was granted in July 2017.
The Request concerns the affairs of a group of commercial entities (“the Group”) which, through a smartphone app, facilitates on-demand transportation services by connecting passengers with drivers of vehicles for hire as well as ridesharing services.
The Tax Authority was conducting a tax audit of a Group member in the Requesting State, which provides marketing and support services to a Dutch Group member. The Dutch Group member pays the Group member in the Requesting State for these services at cost plus 8.5 per cent.
The Dutch Group member is the “principal” Group entity for the non-US market. It enters into contracts with drivers and customers, in return for which it receives a commission fee from drivers. The Dutch Group member is said to be an indirect subsidiary of the defendant, and the defendant is registered in Bermuda. A Group member registered in the United States has allegedly licensed various intellectual property rights and intangible assets (e.g. knowhow, design, technology, website, marketing intangibles) to the defendant, and the defendant has allegedly sub-licensed them to the Dutch Group member.
Under the law of the Requesting State, transactions between companies in the same group must be priced as if they were carried out at arms’ length. The Tax Authority was concerned that the remuneration paid by the Dutch Group member to the Group member in the Requesting State may be artificially low and that it therefore failed to satisfy this requirement. In order to establish whether this was in fact the case, the Tax Authority sought to obtain information about the pricing structure and distribution of profits between the other Group entities. The Group member in the Requesting State explained to the Tax Authority that it was not in a position to provide the information which the Tax Authority requires – hence the Request.