All I can say is myself and others will be watching closely. This first hearing looks to be mainly officials from the CRA along with yet to be named persons from the Department of Finance and RCMP. Hope no one for their sake at the hearing says anything stupid like that guy from the German Embassy in Washington DC.
@Petros, How does Canada deficne a Tax Haven? Is in any country whose tax system does not mirror those of Canada and whose marginal tax rates are not at least has high as Canada? Does it include those countries which have no income tax or a very low rate, but instead generate their tax revenues from consumption or other forms of taxation that are not based on income?*
*They don’t know what a tax haven is or who they are even going to call as witnesses. I am working on this behind the scenes some more. Do any Brockers want to testify?
I’ll repeat here what I’ve written before about tax havens. Each country is sovereign to decide how it’s going to tax its people and spend their money, so if a country wants to tax only consumption or have a low income tax, or to have little government spending and therefore lower taxes overall, that’s its own choice and I think other countries should respect that.
The OECD used to maintain an infamous “black list” of tax havens, and other countries made similar lists based on that. However, throughout the years the OECD kept removing jurisdictions from the list after they agreed to its standards of cooperation, to the point that the list got empty in 2009, as it remains today. So as far as the OECD is concerned, tax havens don’t exist. Lists of tax havens are also notoriously subjective, incorrect, incomplete and outdated. For example, Italy lists Aruba (maximum income tax rate of 59%, third highest in the world), Switzerland (42%) and Taiwan (40%) as tax havens, Spain lists Fiji (31%) and the US Virgin Islands (40%), both list Grenada (30%) and Liberia (35%), and neither lists Kuwait, Qatar or the Vatican City (no income tax).
*Sometimes I feel as if both the US House Ways Committee and the Canadian Finance Committee really don’t know what the f they are doing.
*@Tim, You can add to your list of committees that really don’t know what they are doing, at least as far as what constitutes a Tax Haven is concerned, the Senate Finance Committee as well.
@Tim,
Thanks for pointing this out however, the link only leads to the opening page of the website and it’s not clear when this meeting is going to happen?
Tax haven definition is simple. USA Corporate tax rate is the highest of those in the OECD. Each and every country in the World is therefore, by definition, a tax haven. This justifies all media stories and all actions.
@Tim
Do you have a link to what the guy from the German embassy said?
@Mark Twain
No doubt true.
*Its Part 1 of the George Mason seminar videos.
@ Nobledreamer et al.
The link didn’t work for me either. Try this:
http://www.parl.gc.ca/HousePublications/Publication.aspx?DocId=5954764&Language=E&Mode=1&Parl=41&Ses=1
If it is of interest, the Committee discussed tax havens in February 2011. Here is a transcript of the proceedings:
http://www.parl.gc.ca/HousePublications/Publication.aspx?DocId=4937782&Language=E&Mode=1#Int-3723162
You will see that D. Scott Michel was a witness and that he introduced the Committee to FATCA, which clearly was unknown at that time to at least some of the members.
@ Roger Conklin
I searched “tax haven” on the Justice Canada site for Canadian acts and regulations. The searched produced nothing. Hence, it appears there is no definition within Canadian law, though there could be some unofficial usages kicking around.
Nicholas Shaxson* observes there is no agreement on what a tax haven is. He offers several distinguishing features:
These features are typical of tax havens, of what the French call a fiscal paradis.
By these measures, simply having a lower tax rate does not make a country a tax haven.
* Nicholas Shaxson, Treasure islands: tax havens and the men who stole the world. London: 2012. See pp. 8-10
*@NorrthernShrike,
One of the reasons for designatating a country as a tax haven is that country’s failure to cooperate when other countries request information concerning their residents financial accounts in that country. By this defiition Mexico would consider the US to be a tax haven because the US consistently has denied Mexico’s requests concerning the bank deposits of Mexican residents in the US becuse the requested information was “not available.l”
FATCA, the new IGA between the US and Mexico,l plus the new IRS retulation requiring US banks to report full details of foreign non-resident deposits to the IRS should solve that problem, if it really happens. With this data in the hands of the IRS it can now “reciprocate” and provide this data to Mexican auitorities in exchange for Mewxico providing identical data on US citizens accounts in Mexico. The remaining problem is that that of the 1.5 million US citizens estimated to be resident in Mexico, most of them are likely dual citizens and their dual US citizenship is something that the Mexican authorities are not aware of, nor is there any prictical way to find this out. There are, for example, many Mexican citizens who were born in Mexico to a Mexican parent who was born just nort of the Mexico-US border. More than a few of those mothers, like the mother of ex-New Mexico governor Bill Richardson, had come to the US for the specific purpose of receiving excellent medical care when giving birth to her baby. His father had stayed behind in Mexico. Under Mexico’s nationality law Richardson, having been born outside of Mexico to a Mexican citzen parent, was a Mexican citizen at the moment of birth. He was also of course a US citizen from the moment of birth. With his mother Bill returned to Mexico immediatey after he was born, going to school there. Later in life he chose to leave Mexico and relocate to the US for his higher education and eventually entered politics and became a governonr. He also served as the US Ambassador to the UN. But there are many more with his same citizenship situation who stayed in Mexico after their mothers took them there as a newly-born child who first saw the light of day in a US hospital. In all probability they are considered as Mexican as far as their Mexican banks are cvoncerned, as are their own children born in Mexico.
@NorthernShrike,
Thanks, I’ve been watching their schedule and guess it got posted after the last time I checked.
@Tim
Thanks, trying to find the time to sit down and watch the George Mason video’s.
*These hearings will be interesting. The Greens have clearly put their cards down on the table. It will be interesting to see what cards the NDP and Liberals hold. I will make a prediction in that all of the attendees will try to avoid as much as possible talking about FATCA.
The Committee is interested in tax evasion and use of tax havens by Canadians. Any discussion of FATCA is likely to be tangential, I think, though they might ask themselves whether FATCA is an appropriate model for Canada or whether FATCA reciprocity with the US has anything to offer Canada. IMHO, for whatever that is worth.
*I am somewhat disappointed that this is tact the are going to be taking as FATCA effects over 1 million Canadians while there are perhaps a couple of hundred maybe a thousand Canadians with bank accounts in offshore “tax havens.” As I said if they completely ignore FATCA vote accordingly NDP, Conservative, Liberal vs Green Party.
*I have been listening to todays hearings too and I can’t say I have been terribly impressed.
The verbatim record (“Evidence”) of the Tuesday, Feb 5 2012 meeting of the Committee, respecting tax havens and tax evasion, is now available at:
http://www.parl.gc.ca/content/hoc/Committee/411/FINA/Evidence/EV5960311/FINAEV102-E.PDF
The verbatim record (“Evidence”) of the Thursday, Feb 7 2012 meeting of the Committee is now available at:
http://www.parl.gc.ca/content/hoc/Committee/411/FINA/Evidence/EV5971039/FINAEV103-E.PDF
I have not yet read and digested these documents. A word search indicates no discussion of FATCA on Feb 5, but extensive discussion on Feb 7.
Some FATCA extracts from the Standing Committee on Finance regarding tax evasion:
Page 4
Mr. Thomas Cardamone (Managing Director, Global Financial Integrity):
The United States Foreign Account Tax Compliance Act— FATCA, as it’s known—requires banks to find American account holders and disclose their balances, receipts, and withdrawals to the Internal Revenue Service in the United States or be subject to a 30% withholding tax on income from U.S. financial assets held by the banks.
Canada could implement its own version of FATCA, and use it to pressure banks in tax havens to automatically share tax information with Canadian authorities, to prevent cross-border tax evasion by individuals. Automatic exchange of tax information between Canada and the United States has existed for years and works very well.
Page 8
Mr. H. David Rosenbloom: I’m quite familiar with TIEAs. I negotiated one on behalf of the Government of Liechtenstein with the United States. I’m a skeptic about TIEAs or exchange of information provisions having a very broad effect, because they tend to be one-off agreements. I don’t disapprove of them as such, but they’re not going to solve the problem of tax evasion. Once they’re in place, they’re implemented much less frequently than you would imagine and with much more bureaucracy in the processing of requests and the responses to requests.
The United States took a major step when it applied FATCA, which is a statute that one could debate all morning and probably, from the U.S. point of view, a terrible idea and very offensive to other countries. But nevertheless, it had the effect of getting the world’s attention.
Information exchange is all for the good, but again, I actually think that’s a separate subject from tax evasion. I think you need to address tax evasion and you have to ask yourself one more thing: whose tax are you trying to stop the evasion of? Are we talking about evading Canada’s tax, or are we talking about evading Zambia’s tax? Those are very different questions.
Page 15
Mr. Mark Adler:I’m also interested in FATCA. I know that there were a few unintended consequences of FATCA, and it is really insulting to a lot of other countries what FATCA has seemed to accomplish.
Mr. Rosenbloom, you were speaking before on FATCA. Could you comment on the negative consequences of FATCA and why it is a poor piece of public policy?
Mr. H. David Rosenbloom: Yes, of course. The worst aspect of FATCA is what it did to the United States. It basically deflected large numbers of our resources into writing these incredibly detailed rules for something that’s not going to produce a lot of revenue. It never made much sense to me to take people off corporate tax audits and have them writing rules for the rest of the world.
I also have severe doubts about how FATCA is going to play out. We’re going to get tons of information from all over the world, but exactly who is going to read that information? When last I looked, they had one individual up in a warehouse in Detroit looking through our foreign bank account reports.
You know, I just doubt that we’ll go on spending all these resources indefinitely on this.
Now, I’m sure you’re not focused on that. I think most of the rest of the world is focused on the intrusion into other countries’ processes, etc. I appreciate that FATCA’s a very…. Nobody ever did a cost-benefit analysis on FATCA. There’s a huge amount of cost required of financial institutions around the world, and there’s a lot of foreign policy, foreign relations, and negative effects of FATCA, but to me it’s kind of a stupid piece of legislation just within the U.S. context.
…………
Mrs. Cathy McLeod ( Kamloops—Thompson—Cariboo, CPC): Thank you, Mr. Chair.
I certainly will open the floor, because I’m very interested, Mr. Cardamone, in what you have to say on FATCA.
Mr. Thomas Cardamone: I think it…[Technical difficulty— Editor]…focused the world’s attention on this issue. I would warn against prejudging the results and the impact of this piece of legislation.
While it may…[Technical difficulty—Editor]…it is purely a transparency request. It’s not regulatory. It doesn’t tell banks how they should operate, just that they should report the information that they have. It’s a very simple…[Technical difficulty—Editor]… information exchange piece of legislation. Whether we have the ability at this point to use that information remains to be seen. But that can always be addressed later on.
I think the fact that it…[Technical difficulty—Editor]…focused the world’s attention on this issue in and of itself is a benefit. I look forward to seeing how it is implemented as time goes on.
Mrs. Cathy McLeod: I would actually like to take the opportunity to build on that thought. I’ve heard comments from many that there should be this multilateral exchange and free flow. To some degree, I always saw the TIEAs as being precursors to something like FATCA.
Really, can you talk about how this multilateral free flow is different from FATCA so that I can perhaps understand it a little bit better, and what you’re envisioning with multilateral free flow versus what the American legislation is trying to do with FATCA?
Does anyone want to tackle it?
Mr. Thomas Cardamone: All that FATCA has to do with is… [Technical difficulty—Editor]…holders in foreign banks, and those foreign banks have to report back to the United States Internal Revenue Service. It’s multilateral in that any foreign bank that has American account holders in it has to report back to the U.S. That’s a different system from the TIEA arrangement that we were discussing…[Technical difficulty—Editor]. Those are bilateral agree-
ments between governments, suggesting that information upon request will be provided.
We’re suggesting that there should be…[Technical difficulty— Editor]…multilateral approach to government-to-government agreement, much like what is in place with the European savings tax directive.
Mrs. Cathy McLeod: I recognize that TIEAs are bilateral on request. FATCA, then, becomes an automatic one-way. So is the natural evolution not just a multilateral two-way?
Mr. Thomas Cardamone: Are you suggesting that foreign countries would ask American banks to report back to them, when American banks have account holders from those countries? Is that the suggestion?
Mrs. Cathy McLeod: No. What I’m asking is how you would differentiate that in terms of what you were suggesting in terms of multilateral flow of information.
Page 16
Mr. Thomas Cardamone: FATCA is sort of a step in the right direction. It’s not an agreement, of course, between governments, as we’re suggesting should be in place, like the European savings tax directive…[Technical difficulty—Editor]…a requirement put upon foreign banks to have American account holders.
…………
Mr. H. David Rosenbloom: Actually, I think FATCA is evolving toward an intergovernmental system, because FATCA, as drafted, really doesn’t work very well. It’s just incredibly intrusive.
The United States has developed several models of intergovernmental arrangements, and it’s negotiating currently with more than 50 countries. I think it’s probably already negotiated with Canada. I haven’t followed it on a day-to-day basis.
This is not contemplated by the legislation. The Internal Revenue Service, commendably, has converted FATCA into more of an intergovernmental arrangement.
As to whether it would work on a multilateral basis, I have some real doubts. It’s very expensive for financial institutions to comply with. And if you had to comply with similar legislation throughout the world, with all countries asking banks, I think it would be quite a burden.
On the other hand, you could argue that it’s one of the reasons why FATCA is a poor piece of legislation. If you pass a piece of legislation that you don’t want to have coming in your direction, that’s a suggestion that the legislation had some defects to begin with.
Page 18
Hon. Judy Sgro: I think very often we try to do too much. Focusing specifically on tax havens would probably be the way to go. So as we talk about different ways of just how things can be successful, clearly FATCA gives you some real cause for dismay.
Here is the Canadians for Tax Fairness presentation to the Finance Committee (dated Feb. 14th), for what it is worth …
http://www.tackletaxhavens.ca/ sites/ tackletaxhavens.ca/ files/ attach/ brief%20to%20FINA%20on%20tax%20havens.pdf
Also, nobledreamer posted excerpts from the Feb. 14th meeting here …
http://isaacbrocksociety.ca/2013/02/13/ctv-will-be-taping-tommorows-hearing-on-tax-havens-in-ottawacockfield-murphy-cba-and-others/
And finally, Alison Christians has some interesting thoughts on FATCA IGAs here …
http://taxpol.blogspot.ca/2013/02/the-dubious-legal-pedigree-of-fatca.html