Cross posted with permission from Tax, Society & Culture
I have just posted on SSRN a submission to the Canadian Finance Department co-authored by myself and Professor Arthur Cockfield of Queen’s University. Here is the abstract [the full submission can be downloaded here]:
The United States enacted a tax reform in 2010 known as the Foreign Account Tax Compliance Act (FATCA), which will impose an extensive third-party monitoring and disclosure regime on financial institutions around the world in an effort to “smoke out” American tax cheats and expose their undeclared foreign assets to the U.S. Internal Revenue Service (IRS). The flow of information from Canadian financial institutions directly to the IRS that is required by FATCA would violate a number of laws in Canada. Accordingly, the United States has requested changes to these laws. The Canadian government now seeks to accommodate these requests in the form of an “intergovernmental agreement” (IGA) with the United States, which will be enacted into law as the Canada–United States Enhanced Tax Information Exchange Agreement Implementation Act (the Implementation Act) pursuant to a proposal released for comment by the Department of Finance. The Department of Finance invited public comments on these documents. We examined the proposed Implementation Act and the IGA and we find that they raise a number of serious issues ranging from likely constitutional violations to violations of international law. We submit these comments in the hope that they will help lawmakers and the public understand that FATCA, while intended to catch tax evaders, is poised instead to impose serious and unjustified harms on people who live around the world as non-resident U.S. citizens and green card holders, as well as their family members and business associates.
I know that some of my good friends and colleagues view FATCA as a net positive step toward a much-needed global automatic information sharing regime, and some have not understood my reasons for caution. I hope that this submission will help explain some of these reasons.
I want to add that in my view, the Department of Finance unnecessarily inhibited public debate on the impact of the proposed legislation by setting an arbitrarily short period for comments. The agreement itself is complex and must be analyzed in the context of the underlying U.S. law and regulations as well as the more than twenty agreements the U.S. has signed to implement FATCA with other countries. In the little more than one month’s time that the Department of Finance allotted for public comment, these thousands of pages of applicable law and regulations have been augmented by several hundred new pages of guidance from the United States tax authorities, and will be further augmented when the Canada Revenue Agency (CRA) publicly releases its own guidance for Canadian financial institutions.
In restricting the time for Canadian tax practitioners and policy observers to review this lengthy, complex, and fundamentally global regime, the Department of Finance has deprived itself of the opportunity to receive more meaningful and thorough consideration of the many policy and practical issues involved in implementing FATCA in Canada. I hope that the Finance Department will extend its time to receive comments, especially if and when further guidance is issued.