@PeggyNashNDP Calls for debate in the Parliament regarding #FATCA https://t.co/cRGUYrMsz3 …
— USExpatCanada (@USExpatCanada) April 3, 2014
With thanks to Blaze!
@PeggyNashNDP Calls for debate in the Parliament regarding #FATCA https://t.co/cRGUYrMsz3 …
— USExpatCanada (@USExpatCanada) April 3, 2014
With thanks to Blaze!
Leaked guidance notes threaten to invalidate Canada’s FATCA IGA
Canada risks finding itself on the wrong side of history according to confidential CRA guidance notes leaked on March 26, 2014 and legislation buried in the 2014 Budget Implementation Bill tabled on March 28. The legislation and notes are necessary to bring into force Canada’s intergovernmental agreement (IGA) with the US Treasury regarding the Foreign Account Tax Compliance Act (FATCA).
The legislation was buried in the 396-page bill that implements key elements of the 2014 Economic Action Plan, the press release for which did not reference FATCA or the IGA. The notes and legislation confirm Canada’s attempt to unilaterally restrict the definition of “financial institution,” which places it squarely out of step with the IGA, US law, IGAs with other countries, and the OECD’s common reporting standard for the exchange of financial account information.
FATCA is designed to stem the USD100 billion the US congress calculates it loses annually to tax evasion by US citizens who secret assets offshore. The OECD has used the FATCA architecture as the template for the worldwide effort to combat tax evasion. OECD member countries, of which Canada is one, have agreed to implement these standards beginning 2015.
The US’s FATCA legislation is stunning in its ambition, reach and its complexity and if Canada had not entered into the IGA with the US, FATCA would have applied unilaterally, and all Canadian entities would have faced the dilemma of complying with Canadian law (and suffering the consequences under FATCA) or complying with FATCA (and suffering the consequences under Canadian law). All right-minded people will agree that life under the IGA is better than life under FATCA.
However Canada’s legislation and leaked guidance notes threaten to invalidate the IGA and cast certain Canadian entities, including private trusts, out of the walled garden of the IGA and into the inky blackness of FATCA.
Pundits and commentators that either admonish Canada for entering into the IGA or encourage Canada to take a stand against the US, frankly do not understand how FATCA withholding works. Simply put, FATCA is self-executing and does not require enforcement by any sovereign. FATCA is enforced by the rational economic decisions made by market participants. In that sense, FATCA works like a sales tax: the merchant is obligated to withhold and remit the sales tax, and if it fails to do so it is liable.
If the legislation is passed into law it will likely result in three undesirable consequences.
First, the US Department of the Treasury could conclude that the legislation has failed to validly implement the IGA, which would nullify the IGA and subject Canadian entities to the full force and effect of FATCA.
Second, If the legislation does bring into force the IGA (which is unlikely) a Canadian entity that is not classified as an financial institution under domestic law (for example a Canadian private trust) but would be classified as an financial institution under US law or other IGAs (for example a Canadian private trust) will face unnecessary withholdings and the concomitant obligation to seek a refund directly from the IRS.
Third, inconsistent definitions of the term financial institution among jurisdictions that have executed IGAs will cause increased compliance costs and uncertainty in the marketplace. Both the OECD and UK recognized the need for consistent definitions and have taken the global lead in developing model and domestic legislation to provide a framework for the consistent application of definitions and resulting entity classification.
The global effort to combat tax evasion has changed the world, and we are only now beginning to feel the repercussions. The IGA goes a long way to mitigate the compliance cost and consequences of non-compliance. However, the Canadian legislation threatens to derail the benefits otherwise conferred under the IGA and force all Canadian institutions into the dilemma of complying with FATCA or complying with Canadian domestic law. As the OECD’s common reporting standards are adopted by member countries in the next few years, Canada’s reluctance to adopt standard entity classifications threatens its credibility as a country committed to the global attack on tax evasion.
– See more at: http://www.step.org/leaked-guidance-notes-threaten-invalidate-canada%E2%80%99s-fatca-iga#sthash.glustiP2.dpuf
I just received the same youtube link from Peggy Nash myself.
Thanks for posting this, Trish. I presume this is after Elizabeth May tweeted that debate was going to be halted for Bill C31?
Thanks, Blaze!!!!
Before Elizabeth May tweeted that the Cons were shutting down debate, Bill Curry (Globe and Mail) tweeted:
Bill Curry @curryb 6h
“This is a remarkable breach of Canadians’ privacy” says Lib finance critic @scottbrison re: CRA collection of tax data for IRS
Bill Curry @curryb 6h
Budget bill being debated in the House today. NDP, Libs and Greens very critical of FATCA sections.
It would be great if someone could find a video of Brison and anything May said .
What struck me most was that she reprimanded the people there for undermining the democratic vote by “sneaking” in laws- in a way, by withholding information from the voters. I think this is the most sinister thing of all- because it means that similar to America- the government can be run by those in power and not by the people.
@swisschocolate – me thinks the “compliance condors” underestimate the quandary that Treasury declaring an institution “non-compliant” would create. If NO Canadian institution were compliant, Treasury would be throwing a spanner in the works of all US Finance since Canada accounts for billions of dollars per day of trade. My recollection is that nobody gets to automatically withhold unless or until Treasury makes a determination that a particular institution is “non-compliant”. They would have to so declare for ALL of Canada. They would do so in the face of a tax treaty – and likely an open offer from Canada (and certainly no impediment from the Charter) – that will permit all of FATCA for US residents. The only thing Canada cannot give them is disclosure re Canadian residents whom the US has already agreed (in a treaty they have not fully respected) to leave untaxed for all Canadian source income – they will be sore pressed to pull the financial system down over their heads to squeeze the last drop of the lemon. In short, the assumption that resistance is futile is a flawed one. Compliance is what is feeding the beast. Resistance is easy and would disarm it completely.
addendum: Canada COULD unilaterally amend the IGA via the implementation treaty with a simple “notwithstanding” clause to the effect of “Notwithstanding any other provision of this Act or the IGA, no Canadian citizen resident in Canada or other permanent resident of Canada shall be considered to be a “US Person” for purposes of the Act or the IGA”. The IGA would be unamended – the implementation Act would simply gut it of its Charter-violating aspect. Treasury could either swallow it – and allow Canada to be deemed to be compliant – or throw the financial world into chaos. Remember – a US institution that withholds to respect FATCA would not be freeing itself of liability to its Canadian counterpart merely because US law says so. They would be in breach of any contract not governed by US law – remember the complex web of agreements between financial institutions has trillions of dollars of derivatives attached to it. These invariably have clauses deeming a default by one party to be a default under all agreements entitling the innocent party to collapse all outstanding derivatives and collect on the “in the money” contracts.
Imagine this scenario, if you will: CIBC has a credit default swap arrangement with Bank of America that it would like to get out of. Bank of America witholds $1 million on some miscellaneous payment due to CIBC because Treasury declared them non-compliant. CIBC declares B of A in default and collapses the swaps that it was otherwise tied to and couldn’t get out of. For even greater fun – this is happening on a large scale and the normal “mark to market” mechanisms are thrown out of kilter because everybody is doing it at once. Shades of 2007-2008 (this is EXACTLY what started the snowball down the hill in 2008) as the trillion dollar derivatives markets grind to a halt and throw off all kinds of aberrant results. You can finish the story from there. My point is that Canada is “Too Big to Fail” from a FATCA point of view. The US has to take what they are offered and if what they are offered is 95% (economically) of what they want, they will not no political cover for creating a crisis without a solution over nothing. Remember, neither FATCA nor the Tax Treaty are in ANY WAY intended to be tools to cause “form compliance”. They are all about catching ACTUAL tax cheats and on the wording of the US Canada treaty, there aren’t any in Canada if their only income is Canadian.
What does it say about our government’s respect for democracy when they’ve closed Parliamentary debate before the date for all public submissions has not yet come to pass? It says they can’t even pay it lip service.
@Bubblebustin
There will actually be three more days of debate under the motion passed by the conservatives one of which will be tomorrow(Friday) then two probably next week before it goes to committee where the real fun will start(including appearances in all likelihood from the banks).
@All
Here is a link below to today’s proceedings in Parliament were FATCA was discussed. You will need to search around a little bit as it is an 8 hour video much of which is non FATCA related. I personally am going to call it a night and wait for today’s transcripts to be published tomorrow morning.
http://parlvu.parl.gc.ca/parlvu/ContentEntityDetailView.aspx?contententityid=11522&date=20140403&lang=en
Why don’t we all ignore fatca and if they threaten to withhold the 30 percent tax, just come out with a new law that canada will withhold 35 percent on them.
Why is it they can make up their own rules and everyone is supposed to do what they say. If its fair for them to withhold then every country in the world should withhold on them.
The world needs to grow a set of balls. The USSA has overstepped it’s boundries. Canada is simply calling you “Americans” even though you have Canadian citizenship. I guess being a Canadian is not even worth the paper it is written on, except for tax purposes! Now we know what we are worth to Canada…….
@NativeCanadian
I like to try to preserve my sanity by blaming the Conservatives. Only time will tell if It’s all of Canada.
@Tim
Thanks for the update. I didn’t have a clue. Your knowledge is invaluable here at Brock.
I’m sick of this lousy 51st State. Not what I bargained for when I immigrated here 44 years ago. Harper…..you are eloquently speaking, a fucking traitor and I would recommend that he chokes on one of his big fat cheeseburgers. I’ve never ever ever seen such a sickening man in my life, ever.
“no Canadian citizen resident in Canada or other permanent resident of Canada shall be considered to be a “US Person” for purposes of the Act or the IGA””
Sorry but that would mean that Obama, who cut off Harper’s balls under the Obama Care Castration Program (OCCP) would have to give Harper his gonads back, something that even Harper himself doesn’t need nor want back.
Surgite
@jack – of course that is what would happen if the US were ever to actually withhold. I don’t believe they could or would since it would bring catastrophe down upon the US banking system. They can’t – the simplest way out for Treasury is to turn a blind eye and pretend Canada is compliant when it is not.
Make it real simple for Mr. Rajotte and Peggy Nash:
The Act is amended by inserting after subsection 4(1) thereof the following:
“section 4 (1.1) Notwithstanding any other provision of this Act or the Agreement, for all purposes related to the implemenation of this Act and the Agreement, “US Person” and “Specified US Person” shall not include any person who is a Canadian citizen or is a landed immigrant ordinarily resident in Canada.”
That simple amendment, made to the implementing Act, would put the ball right back in Treasury’s court. They can deem all Canadian financial institutions non-compliant and bring their own financial house of cards down about their own heads (as withholding, while possibly lawful in the US, will not excuse the withholder in any other jurisdiction, including Canada). It would take a positive act on the part of Treasury to blacklist the entire country. They would not be able to point to 10 cents of revenue that they would be seeking to protect in so doing. Further, as pointed out above, Canada would have more than enough fodder to retaliate in kind given the far larger magnitude of US investments in Canada (most of which, unlike bank accounts, can’t be moved overnight). All they would have to do is pretend that the IGA is compliant and drive on. It would be a brilliant move by the Government were they to allow themselves to be backed into it due to a serious Charter Challenge.
@ Anne Frank
I agree. Its important to give the opposition politicians an actionable request. In letters, I’ve been requesting that, at the least: “… legislation to embed the US law FATCA in Canadian law should exempt Canadian citizens and residents from its effects.”
In that the Canada-US tax treaty itself specifically exempts Canadian citizens from assistance in collection of US taxes by Canada, and in that the so-called information sharing agreement is supposedly a simple extension of the Treaty, it seems especially to exempt Canadian citizens.
Once citizens are exempted, the Charter would likely extend the protection to all residents of Canada as well.
How is such an amendment inserted; at the committee stage? What does it take to get our views represented to the Finance Committee? What does it take to get standing to appear?
The Vice-chairs are Scott Brison and Nathan Cullen – both seem sympathetic to the anti-FATCA cause.
If ready in time, could a version of the Arvay opinion letter (edited for that purpose and vetted to not disclose confidential advice or strategy) be a submission?
We could make a proposed amendment even easier and use the term tax resident.
I found an Ontario credit union yesterday with assets exceeding the $175 million who confirmed they will require new members to confirm they are tax residents of Canada with a driver’s license and SIN. I will post more on that in the credit union thread.
Of course, that is essentially what Peter Hogg recommended in 2012 and nobody listened to him.
CONGRATULATIONS to Ms Peggy Nash ! Thank you for raising these matters in Parliament. Pray God that the MPs take a determined stand on these things … especially FATCA but in general as well against back door dealings and sneaking through laws out of sight of the Canadian voters. Even though the Obama administration seems to be making the back channel sneaking around standard practice in Washington, CANADA needs to say NO ! If the US wants to behave like a third world bully nation governed by a dictator then so be it … but NOT so in Canada ! Civilization MUST trump the playground bully boy behavior. If Harper and crew allow FATCA and continue with this sort of misGovernment then they need to be ousted … they need to be shown that the voters have lost confidence in them and they need to be shown the back end of a ballot box.
I am not a Youtube member nor Google+ and only use gmail to initiate my Android phone … but I must ask, if any of you are members of the Google club, please comment on Ms Nash’s video on youtube …. let her know that her stand is respected.
@Blaze – I suggest keeping things simple … Canadian Resident is sufficient. Getting into more words opens doors for bureaucrats to make up their own rules. The key thing is that the US need to tax ONLY their own Residents and accept withholding tax on income generated in the US by investments therein by non-residents. Same principle as in every other country on earth bar Eritrea.
@Anne Frank
Thank you for your wonderful posts.
@Blaze, “I found an Ontario credit union yesterday with assets exceeding the $175 million who confirmed they will require new members to confirm they are tax residents of Canada with a driver’s license and SIN.”
From my side of the pond thats very reasonable both post-FATCA and pre-FATCA.
To be bluntly honest, HOMELANDERS with overseas accounts not subject to tax anywhere should be stopped.
For that matter where I live, I got rid of my US accounts because they were foreign and overseas to me. It would not have been right in my minds eyes to keep them, besides my own tax authority warns about such accounts!
My guess is that the local credit union would accept some other documentation based on my experience over here but it would prove the same thing in the end.
Last point, pre-FATCA while visiting the USA, I was astonished at the number of TD, BMO and RBC branches in Florida. Deep down I said then, no good will come from this for Canadians.
@George: TD has more branches in the US than they have in Canada and want to continue to grow there.
@SwissChocolate …. Long post but let me concentrate on one aspect only. FATCA and indeed GATCA ARE the wrong side of History.
FATCA and GATCA seek to concentrate enormous information and thus power in the hands of the “Rulers” of the world. Too much Power in those hands result in Dictatorship … whether of the right or of the left. Power breeds abuse. Consider Stalin and what happened to so many millions during his rule in what was the USSR. Consider Hitler and what he did with his power to decimate the Jews and others who he chose to persecute. Consider Pol Pot. Consider the Inquisition. Consider the Catholics in the England time of Henry VIII. Consider the Irish at the time of the Famine. Consider the Scots suffering the oppression of the English. The list is endless.
Governments MUST be transparent in their dealings and law making. To enforce this principle, Government must be limited in its scope under strict Constitutional limits (such as those designed by the US Founders and now so often honoured in the breach).
People NEED Privacy. Governments must never be allowed to accumulate so much information about people such that the people in effect become enslaved from cradle to grave …. that is what causes revolution … often with violence. People need their privacy for their sanity and also to be able to make their arrangements quietly to escape Tyranny … like steam from a boiling pot … peacefully … to vote with their feet (and the accumulation of their lives’ produce). Block the steam vents and the situation becomes explosive. It is those good honest hardworking people In so many millions who in running from Tyranny of one sort or another (political, economic, religious or otherwise) populated the Americas following the 1400s (I wont get into the earlier waves of Immigration from Asia primarily but also elsewhere).
All politics is at its root local. Politicians and bureaucrats need to learn to deal with their LOCAL constituencies … ie their RESIDENTS and stop trying to rule the entire world. Politicians and their bureaucrat gangs need to learn to respect the people … indeed politicians ought to rightly fear the people.
@Blaze, so TD really stands for Tampa/Daytona Bank and they happen to have a small subsidiary in Canada?
Very happy we have building societies which are like a credit union but they focus on making mortgage loans. We also have credit unions but they are micro financial entities.
From what I have now learned about your credit unions, I would be very uneasy about those large unions who are getting into “diversified” financial planning. No good will come from that either.
Oh in our IGA we benefit from the local client base rule in that the 98% of accounts can be across the EU.