FATCA compliant foreign financial institutions (FFIs), including Canadian banks and investment houses, are required to close “recalictrant” accounts or collect 30 percent Withholdable Payments made to Recalcitrant Account Holders or noncompliant FFIs.
Closing accounts would entail freezing them until arrangements are made for the disposition of the account, be it transfer or whatever, at which point 30 percent of the assets would be withheld and given to the IRS.
Now, I make the observation that FATCA is US, not Canadian, law, and that FATCA compliance is voluntary. In effect the FATCA compliant Canadian bank or other institution is purchasing access to US financial markets with the assets of account holders.
On the face of it, this appears to me actionable and would lead to perhaps the largest class-action law suits in Canadian history.
I wonder whether anyone has any thoughts on this.
@NorthernStrike
I agree completely. As a matter of Canadian law it is quite legitimate to simply refuse to signup as many credit unions without any ties to the US are indicating. The issue is the 30% witholding tax not just on US source interest and dividends, but also sale of US securities even if a loss(not until 2015), and on royalties, salaries, and some other type of non investment income that I forgot offhand. In addition this witholding is not just applied to securities holdings of the financial institution itself but all of their customers including solely Canadian RRSP holders who have US investments in their RRSP for example. Given its credit union annual meeting season coming up I was going to write up a post more specifically on how FATCA could affect Canadian credit unions and what questions you should ask of your credit unions management.
In terms credit unions I am actually less concerned about investment income issues(because credit unions don’t generally have any non Canadian source investment income) but their customers who own businesses and receive payment from US based customers. Could a Canadian business owner who tries to cash a check from the US for services rendered at non FATCA compliant credit unionsget thirty percent of the check witheld. I believe Petros did an earlier post about how Americans could pay thirty percent more for imported toilet paper because of FATCA for example
“…required to close “recalictrant” accounts or collect 30 percent Withholdable Payments…Closing accounts would entail freezing them until arrangements are made for the disposition of the account, be it transfer or whatever, at which point 30 percent of the assets would be withheld and given to the IRS.”
So, basically closing the account won’t even help if you don’t want to comply, because that will trigger the 30% penalty anyway…? Did I read that right?
I thought that this only applied to money based in the US, but now I see that FATCA is even more overreaching than I had ever imagined 🙁
Seems like yet another cash cow for the IRS to milk!
This letter from the Institute of International Finance is the best push back to FATCA I’ve read so far. In it they address the legal obstacles countries face in bringing in FATCA. Either the US will listen, or they may stick to their response “some countries may have to change their laws to implement FATCA”. Those words frighten me the most, and the notion that all customers will have to prove that they AREN’T US persons, to prove a negative. FATCA is unworkable.
http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/Tax/us_tax_Letter_MinisterGovernor_020312.pdf
On credit unions:
Credit Union Central of Canada has consulted Deloitte and is considering that Canadian credit unions may need to be FATCA compliant. From a newsletter:
“It would appear at first glance that this new legislation would have little impact on most Canadian credit unions because, although they may have U.S. accountholders, credit unions do not ordinarily have U.S. source income to which the 30% withholding tax could be applied. However, discussions with Deloitte and others in the financial services industry suggest it is not that simple. There may be implications for the credit union system in at least a couple of areas: (i) connected party rules may join credit unions and their affiliates, such as Credential, Ethical Funds and CUMIS, causing withholding tax issues for the affiliates if credit unions are not compliant; and (ii) other FFIs may require credit unions to provide evidence of compliance with FATCA in order to transact business.”
See p. 2 f.: http://www.cucentral.ca/PAR30JUN11
I think the intent of FATCA is to force a compliant FFI to withhold 30 percent of any transfer or payment to a non-compliant FFI.
@Don Pomodoro
Yes, that is what I understand. A few weeks ago, I phoned the Ontario Securities Commission for clarification of what would happen to an investment account, including pension. OSC delegates much of their responsibilities to the Investment Industry Regulatory Organization of Canada (IIROC). Unlike major banks, which are federally regulated, investment dealers, including investment houses owned by banks, are provincially regulated. Most client contracts include a provision that the investment house can close an account on 30 days notice. The individual I spoke to at IIROC said this would mean that the account would be frozen until disposition is arranged. If it is a simple cash or investment account, this could include simple liquidation, at which point 30 percent withholding would be seized and given to the IRS. Pensions, at the other extreme, are highly regulated and probably no one really knows what would happen. In any case, the only way to get at a frozen/closed account would be to transfer it to another institution, if you can find one. If the institution is FATCA compliant, you are no further ahead. (Also, they would probably not take you anyway.) If it is a non-compliant FFI, e.g. a non-compliant credit union, 30 percent withholding would seized at the point of transfer.
I am not an authority; this is my best understanding of the situation.
@NorthernStrike
I want a big fight with the US. I want Carl Levin to get on Senate Floor and call Canada a nation of tax cheats and theives.
I will soon be posting in a new thread a reply Schubert and I received on Friday from Canadian Bankers Association. In CBA’s reply, they respond to a point Schubert raised about credit unions.
In terms of class action, a few of us are hoping to consult with a lawyer who specializes in Charter and Human Rights issues (who was suggested by Tim). We contacted the lawyer two weeks ago via e-mail. He said he “very interested in this matter,” but was away until March 6 and asked if it could wait until his return. We agreed, but hope to hear from him this week. He has handled several landmark Charter and Human Rights cases.
I will ask him about if a Charter challenge or class action (or both) would be better. Is anyone else interested in joining with the three of us who are seeking the opinion?
Let me say, for the record, how ticked off I am that I, as a 40 year Canadian citizen, may have to pay Canadian earned, saved, invested and taxed money to protect my Canadian financial and privacy rights from a foreign government!
@Petros Following our discussion I was sure I had finally come to terms but after reading the above Northern Shrike— March 4, 2012 at 12:25 pm and Blaze— March 4, 2012 at 12:35 pm , I’M again hesitant on not filing anything.
Fatca is everywhere.
@Blaze «as a 40 years canadian» I’ve been here for over 60 years. My 5 days US birth stay is becoming a growing cancer and not just for me.
All we duals . I’m ticked off by the US which I have nothing to do with. So I understand that my very few RRSP added to my bank account which is around 85-90000 $ plus a public servant pension to be (which is a defined benefit pension plan paid in fact by all canadian tax payers), that 30% would be turned out to Uncle Sam if I do not file.
@Blaze
My hunch is that the Charter approach is a longshot, so I am not pursuing that line at present.
I note that there has not been much (or any) response to the idea I set off with this post, namely that 30 percent withholding on the part of Canadian financial institutions would be actionable by those losing their money, for example in a class action suit. I am sure the banks have their lawyers at work on this.
My advice is to renounce US citizenship ASAP. Since I am a Canadian, have lived here many years, and never intend to return to the US I was more concerned with FATCA then with US taxes or FBAR reporting. The former are laws of a foreign country, FATCA may very well be enforced in Canada. Since I have now renounced, I can honestly say to any bank in Canada I AM NOT A US CITIZEN! Since Canada looks like it is going to cave in to the US, renouncing was a way to protect myself in Canada. As a citizen of Canada and only Canada I am not subject to FATCA,
The Canadian banks are NOT required to obey any U.S. law. The Canadian banks are required to obey Canadian Federal laws, and the laws of the province in which they operate. Legal action can be brought against a financial institution that by violating a law of Canada causes damage to the person bringing the action. (If it is relevant, banks are under the jurisdiction of the Federal Government under the BNA Act.)
Here is what I think the options are:
1. A possible class action against Canadian banks claiming damages for people who incur losses for having their accounts closed in violation of laws governing access to Canadian banking services. I will leave it somebody else to determine exactly what those laws are. Such an action would have to be certified under the class action legislation in each province. Class action laws contemplate a similarity of situation. You can be sure that the bank’s lawyers will argue against a certification motion on this principle.
2. An individual can also sue on the same basis that a group can sue. The argument for the class action is that it makes the courts available to the average person.
3. A formal complaint to the Ontario (and other provincial) human rights commission. This would argue discrimination based on citizenship. Citizenship is a prohibited ground of discrimination under the Ontario Human Rights Code.
4. A possible lawsuit against the Government of Canada arguing an alleged breach of equality rights (S. 15 of the Charter) based on citizenship. Now, this is a tougher argument to make. But, if the Government of Canada will protect citizens of Eritrea from harrassment from the Government of Eritrea, but not citizens of the U.S., then there may be a violation of equality rights, But, I think the Government of Canada can get out of this by refusing to protect any Canadian citizen from a foreign government.
5. Lobby your MP to get a bill passed that makes compliance with FATCA illegal for any Canadian financial institution. This should be done in any event!
The point to remember is that the financial institutions are NOT required to obey U.S. laws. They are required to obey Canadian laws. The very narrow issue in determining any liability on the part of the banks is compliance with Canadian laws.
Finally, if legal action is contemplated it must be organized now.
@Northern Strike
This is horrible – You’re saying that the banks are already following this 30% rule and we’re not talking in the future tense, correct? What ever happened to this 2013 (and onwards) deadline? Sounds like the banks are so eager to jump the gun and please their slave masters that FATCA has already arrived!
I second TrueNorth – Renouncing ASAP is also going to be my plan, even though I had planned to wait a few months to get everything in order first. My money is out of the US so I’m just going to go for it.
All these comments hit upon what most concerns me: that if I wanted to transfer my assets out of my newly opened FATCA-compliant investment account into my local credit union, I would automatically have 30% of the CAPITAL withheld (as well as any dividend income potentially paid into this local bank). It is OUTRAGEOUS.
I am also concerned that if I ever inherit any US money that I will find it difficult to bring the assets over to the UK unless I can find a FATCA-compliant deposit account to receive the transfer.
It’s disgusting.
Now I’m really confused. I’m sure I have read on other threads that the 30% withholding for individuals would apply to US investments only and would be on INTEREST, not CAPITAL. In other words, if you held no US investments, the worst that would happen if you were discovered to be a “supposed” US person is that your bank would close your account but no withholding could occur.
@Greenwood
You said to Petros above ” After reading …above… I’m again hesitant to not file anything…” and to Blaze “I’ve been here for over 60 years”. You may very well not be considered a “U.S.Person”. I assume you have taken out Canadian citizenship. I posted information this past week that a reputable Vancouver law firm, stated in a seminar put on for faculty and retired faculty of the University of British Columbia, that those who became Canadian citizens prior to 1986, were no longer American citizens. I won’t go into the lengthy discussion of what they based that information on as it is already posted, but the laws have changed over the years with amendments to the U.S.Immigration and Nationality Act. If you became a citizen of Canada, prior to 1986 you have an easy case of proving you have relinquished your U.S. citizenship. To start filing tax forms now with the IRS would cancel that relinquishment.
@ tiger
“Vancouver law firm, stated in a seminar put on for faculty and retired faculty of the University of British Columbia…..”
Where and when was that posted?
@Everyone
A reminder FATCA effects all US born persons whether or not you have already renounced.
@Tim that doesn’t make sense. If you legally stopped being a US citizen 3 or 4 decades ago and you have the law stating you are not a US citizen how can FATCA affect you?
Re Class Action suits:
@all, what about investigating the case of FATCA compliance by large Canadian pension plans that have a special relationships (ex. government sponsorship, government contributor and administrator etc.) with federal and provincial, (or municipal governments)? I am referring to those like:
(a) the Ontario Teachers Pension Plan, “one of the largest and most powerful investment groups currently operating in Canada.” “The plan is a multi-employer pension plan, jointly sponsored by the Government of Ontario and the Ontario Teachers’ Federation.” “one of Canada’s largest institutional investors having reported C$107.5 billion in net assets on December 31, 2010.” http://en.wikipedia.org/wiki/Ontario_Teachers%27_Pension_Plan
or,
(b) Federal Public Service Pension Plan ” The Plan is funded from contributions of the employer (Government of Canada) and plan members”
Minister responsible for the plan: President of the Treasury Board
Administrator of the plan: Minister of Public Works and Government Services Canada
http://www.tbs-sct.gc.ca/pubs_pol/hrpubs/pensions/psppg-corprfp-eng.asp
and probably the plans for provincial civil servants in each province, as well as
(c) OMERS “officially the Ontario Municipal Employees Retirement System, is a pension fund created by statute in 1962 to handle the retirement benefits of local government employees in the province of Ontario, Canada. It has become one of the largest institutional investors in Canada”……”The system now includes firefighters, police, emergency services staff, Children’s Aid Society workers, school staff other than teachers, and transit and hydro workers”…”OMERS is regulated by the “Ontario Municipal Employees Retirement Act, 2006″ (S.O. 2006, chapter 2), an Ontario provincial law”
http://en.wikipedia.org/wiki/OMERS
First of all, re the Federal Public Service PP, it is funded in partnership with the Gov. of Canada, and Administered by a federal Minister. Would that plan be able/willing to comply with FATCA – or would compliance be impossible because of the conflict with Canadian law – not to mention the public embarassment? Since when does the President of the Treasury Board and Minister of Public Works and Government Services Canada answer to the US Congress and the IRS?
There may be many duals (and perhaps ‘accidentals’) who are members of these plans. If these plans cannot/will not comply with FATCA, due to conflicts with their mandate, etc. then that may be a large chink in the armour in challenging the participation of others in the private sector. It also serves as an example of inequitable application of FATCA if these become exempted. It is also a glaring example of IRS/US/Congress overreach into another sovereign country if it involves treating a Canadian government sponsored, mandated and funded pension plan as a questionable ‘offshore’ ‘foreign’ asset under FATCA (and FBAR?). I don’t know if these plans invest outside of Canada, but even if they didn’t, they would be third party non-compliers.
It would look really bad if police, teachers, civil servants, firefighters, etc. were ratted out by their Canadian, government employee pension plans. What are their plans to fight FATCA?
I have seen that the OTPP has written at least one submission re FATCA. If they and the other plans I am describing are not exempted, then how will they justify that to their plan members?
By definition, the Federal Pension plan members must be Canadian citizens.
It is also possible that affected plan members may belong to two of these plans – since some workplaces have different plans for different bargaining units.
There are also the quasi-government funded plans – ex. university faculty pension plans….
The larger plans would have a good reason to band together – and in mandate are more responsible for the welfare of all their members – unlike banks and private investment firms (see post re CBA letter http://isaacbrocksociety.com/?s=cba&submit=Search “Reply From Canadian Bankers Association”
Posted by Blaze — March 4, 2012 .
I’m just thinking that the issue of government/quasi-governmental pension plans/investors involves stakeholders who have legal resources to draw on for defence and a clearer fiduciary duty to plan holders. They will also have to notify their members eventually – and if they wait too long, and just announce their compliance at the last minute, there will be really bad publicity. So far I see no evidence that the Teachers has tried to educate it’s plan members and contributors about the implications of FATCA, I don’t know about the other plans.
Has anyone contacted their workplace pension plans to ask what they are planning to do re compliance with FATCA? Ex. Teachers’, OMERS, etc.?
@omghe’stillanamerican
Because under FATCA bank required to ask not just US citizenship status but for US indicia such as being born in the US. Thus even if you are no longer a US citizen your bank still has to report you just because you born in the US and in all likelihood if your income is reported as a US Person who will probably someday get an assessment which you will have to spend a lot of money on US based lawyers to get resolved even if you are no longer a US citizen. Only way out of this particular situation is to present a CLN to your bank. That’s why it is so important to fight FATCA.
Tim said: “Only way out of this particular situation is to present a CLN to your bank.”
Since CLNs are impossible to get maybe the Canadian government could pass a law that says if someone has a Canadian Citizenship Certificate dated prior to 1986, they are not considered a US person.
The definition of US person according to the IRS website is a citizen or resident of the United States.
Your Canadian citizenship certificate and longstanding relationship with your bank should cover both bases.
The idea that we all have to hire lawyers to prove we don’t legally owe anything to the IRS is ridiculous. Instead of hiring lawyers individually maybe there should be a class action lawsuit and the IRS can cover our legal fees since they created this insane situation in the first place.
@omghe’sstillanamerican
According to the response Blaze and Schubert got from the Canadian Bankers Association at the end of the day Canadian Banks however unwillingly have no choice but to go along with what the US wants or else subject ALL Canadians to a thirty percent witholding tax on all US Source Income. The Canadian government cannot define US Personhood for its own purposes to do so would cause all Canadian Financial Institutions to become FATCA non compliant and subject ALL Canadian residents US Person or not to thirty percent US witholding tax.
In terms of have a longstanding relationship with your bank that might count for “now” but if you ever want to change banks better pull out your CLN.
Now of course my intention and desire is for ALL Canadian financial institution by matter of Canadian law to be FATCA NON COMPLIANT and whatever consequences that follow are the fault of the US. I find strongly believe that with time those of us here at Isaac Brock Society will make that vision a reality.
@Hijacked 2012
I posted this in three different spots. One I can’t find. However, it was posted on “Letter from Consulate General 7/25/80” on Feb. 23 @ 10:46 P.M. and again on Feb.29 @2:14 P.M. on “Renunciation and Relinquishment of U.S. Citizenship. Discussion Thread”.
I, personally have not spoken to the lawyer who led the seminar; however, a client of mine did speak to the lawyer. Because of those comments, I did some research and basically what I found was that there was an amendment to the Immigration and Nationality Act in 1986. Basically the amendment stressed there must be “intent” to relinquish when you perform an expatriating act voluntarily. This amendment was passed because of a 1980 Supreme Court Case. Then in 1990 the DOS issued a Directive to its embassies and consulates around the world, basically stating that it was to be presumed that when someone took out citizenship in another country, they intended to retain U.S.citizenship. So pre 1986, the individual would have to “prove” that they wanted to retain their U.S.citizenship because it was assumed they wanted to relinquish. After that date (and for sure after 1990), an individual would have to “prove” they wanted to relinquish their citizenship.
Also, we must remember that as late as 1985, there was a 9th Circuit Court case “Richards vs Secretary of State” where the decision was that Richards did intend to relinquish his U.S.citizenship, although, Richards had tried to “get back” his U.S. citizenship stating he had only become a Canadian for economic reasons. His request was denied by both a lower court and the 9th Circuit Court.
@omghe’sstillanamerican
I believe if it came to the point of ALL Canadians being subject to thirty percent witholding tax I do not believe those Canadians in theory unaffected by FATCA would not blame us here at IBS, and of Federal political parties, or the banks. I am strongly confident almost all Canadians would stand with their fellow citizens “directly” affected and place the blame on Barack Obama and the United States government despite the sacrafice of having all their US investments in RRSP’s, TFSA’s being subject to thirty percent tax.