Minister of Finance v MNO

• Jurisdiction: Bermuda
• Judgment Date: 27 December 2017
• Date: 27 December 2017
• Docket Number: Civil Jurisdiction 2017 No AA24
• Court: Supreme Court (Bermuda)

[2017] Bda LR 143

In The Supreme Court of Bermuda

Civil Jurisdiction 2017 No AA24

Between:

Minister Of Finance

Plaintiff

and

MNO

Defendant

Mr J Elkinson for the Plaintiff

Mr M Godfrey for the Defendant

The following cases were referred to in the judgment:

Minister of Finance v AAA Group Ltd [2016] Bda LR 79

Minister of Finance v AP [2016] Bda LR 34

Application to set aside production order — International Cooperation (Tax Information Exchange Agreements) -Whether Plaintiff failed to make full and frank disclosure — Whether Request was adequately particularised — Relevance of information requested — Whether a trade, business, industrial, commercial or professional secret or trade process — Treaty obligations — Confidentiality — Defective Production Order

JUDGMENT of Hellman J

Introduction

1. On 6 January 2017 I made a production order against the Defendant. The order was made under section 5(2) of the International Cooperation (Tax Information Exchange Agreements) Act 2005 (“the 2005 Act”) on an application by the Plaintiff. The application was made pursuant to a request (“the Request”) from the Competent Authority of the Requesting State on behalf of that State's tax authority (“the Tax Authority”). The Request was made under the Tax Information Exchange Agreement between Bermuda and the Requesting State (“the Agreement”).

2. On 28 July 2017, under section 5(6B) of the 2005 Act, I granted the Defendant a right of review of the production order. Pursuant to section 5(6A) of the 2005 Act, I directed that the Plaintiff disclose to the Defendant all the documents which he had placed before the Court on the ex parte application.

3. This is a judgment on the Defendant's application for review. I have had the benefit of substantial skeleton arguments and admirably succinct oral submissions.

Background

4. The Request concerns the affairs of a group of commercial entities (“the Group”). The Request explains that, through a smartphone application, the Group facilitates on-demand transportation services by connecting passengers with drivers of vehicles for hire as well as ridesharing services. Thus the Group acts as an intermediary by matching available drivers with customers in need of transportation. Within the context of European Union law, the Group does not act merely as an intermediary but provides a transportation service. However in the present application nothing turns on that distinction.

5. The Tax Authority is 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.

6. 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.

7. 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 (eg knowhow, design, technology, website, marketing intangibles etc) to the Defendant, and the Defendant has allegedly sub-licensed them to the Dutch Group member.

8. 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 is 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 fails to satisfy this requirement. In order to establish whether this is in fact the case, the Tax Authority seeks to obtain information about the pricing structure and distribution of profits between other the Group entities. The Group member in the Requesting State has explained to the Tax Authority that it is not in a position to provide the information which the Tax Authority requires. Hence the Request.

Grounds of objection

9. The Defendant advanced eight...