Should the review take place later this year at the Court of Appeal, it could potentially pave the way for an apparently valid notice issued by the Channel Island’s director of income tax to be subsequently struck down by the courts.

Under the Income Tax Law in Guernsey the Director of Income Tax has the power to issue a notice for the production of documents and information where there is a request from a foreign tax authority that meets the criteria of a Tax Information Exchange Agreement (TIEA) between Guernsey and that nation, in this case India.

There is a right of appeal against the issue of a notice under the Income Tax Law, however at a hearing of the Royal Court of Guernsey that took place prior, the presiding judge decided that the right of appeal was not available in this case as the taxpayer, which is being investigated by the foreign tax authority, was not the recipient of the notice.

The Royal Court further refused permission for judicial review on the grounds that the director's decision is taken in line with a binding international agreement and, as such, is not subject to judicial review by the courts. Regardless, the judge said that the taxpayer had an alternative remedy, that of challenging the request by the tax authorities of India in its home jurisdiction. 

Subsequently, the Bailiff granted the taxpayer leave to appeal the decision of the Royal Court regarding whether the issue of the notice is open to judicial review but refused an application to stay the operation of the notice.  As a result, the financial institution was still obliged to comply with the notice within the required time frame. 

However, the Bailiff granted an injunction preventing the director of income tax from transmitting documents and information, pending the outcome of the appeal. 

Laila Arstall, counsel at Carey Olsen which acts for the Guernsey financial instution, said: ‘The case raises critical issues of public interest regarding the exchange of information in relation to tax matters in an era of increased pressure on tax authorities to implement standards of international co-operation which cut across the individual's desire to maintain confidentiality over his private affairs.’