I came across this and am now reading. I am posting the “Conclusions” of “FATCA and FBAR Reporting by Individuals: Enforcement Considerations from a Canadian Perspective” by Andrew Bonham in the link below in case others are interested and haven’t yet come across this.
CONCLUSIONSDespite the increasing trend toward judicial comity, the revenue rule and the penal/public-law rule are still the law of the land. With respect to the enforcement of FBAR fines and penalties, since the BSA is not a taxing statute, the revenue rule would not apply, and ultimately any application or action brought by the United States for FBAR enforcement in a Canadian court would be barred by operation of the penal rule. A similar action brought for enforcement of FATCA claims would be barred by both rules.
This leaves the matter of the impact of the assistance-in-collection provisions of the Canada-US tax treaty. Again, since the BSA is not a taxing statute, FBAR collection claims would not fall under the provisions of the treaty. The issue of FATCA individual reporting claims is more problematic. In the event that the United States were to make an application for enforcement of fines for failure to file FATCA returns, the minister would have the discretion to reject or accept such applications. However, the statutory interpretation of paragraph 1 of article XXVI A may alone be determinative of the issue, thereby obviating the need for the exercise of that discretion — an outcome that would, no doubt, be welcomed by the minister so as to avoid a reciprocity war. However, the existence of that discretion could still be used as a negotiating tool as Canada seeks some compromise with the United States on the FATCA FFI requirements.In my view, paragraph 1 of article XXVI A should be interpreted such that no claims consisting of only a punitive component could properly form the subject matter of a revenue claim. This interpretation is consistent with the OECD interpretation which requires an underlying tax claim to form a part of the revenue claim. This interpretation is also more in keeping with good tax policy than an interpretation that would allow stand-alone claims for penalties.If the recommended interpretation were not accepted by the minister, and the minister were to proceed with assistance in collection of FATCA claims, Charter considerations would apply to the collection mechanism of the CRA, and it would be open to any aggrieved taxpayer (alone or perhaps as part of a class action) to assert that public policy should preclude cooperation with enforcement on two grounds:(1) that the FATCA FFI disclosure requirements (which would form the basis for a FATCA revenue claim) would not be constitutional in Canada; and (2) that “but for” the information obtained by FATCA FFI disclosures, the United States would in most cases have no basis to impose FATCA fines in the first place. The case law does indicate that the constitutionality of a foreign law can be examined where the issue of constitutionality is incidental to the litigation. However, as is also noted in this article, the threshold for refusing a foreign claim on the basis of public policy alone, at least in the context of private international law, is a very high one indeed.One thing does seems clear, and that is the fact that because of the existence of article XXVI A, paragraph 8, no dual US-Canadian citizens resident in Canada can be subject to enforcement of either the FBAR or the FATCA regime insofar as their Canadian assets are concerned. The presence of that paragraph may well compel a number of individuals resident in Canada to seek Canadian citizenship as a means of avoiding potential US claims under the treaty.Finally, although the revenue rule and the penal/public-law rule would currently preclude Canadian courts from assisting in collection, the ever-expanding role of judicial comity may one day see a repeal of these rules, or at least a relaxation of their strictures. Should that occur, the United States would be in a position to resort to principles of public international law as a basis for enforcement, even against dual citizens. In such a case, it may well be open to defendants to argue that the mere fact of their US citizenship should not, in and of itself, be enough to satisfy the real and substantial connection test—especially in cases where the defendant has had little or nothing to do with the United States and has certainly derived no benefit from his or her US citizenship.