Only one week after ushering-in FATCA on Canada Day, Canada’s government is warning the Eritrean consulate to stop harassing Eritrean-Canadians or risk closure of its consulate. Foreign Affairs Minister John Baird made the announcement today in Ottawa (be sure to watch the video as well):
John Baird warns Eritrean consulate over ‘diaspora tax’
Foreign Affairs Minister John Baird says he has sent a message to the Eritrean consulate to stop collecting a “diaspora tax” from Eritrean-Canadians here or he will order the African nation’s consulate closed.
In response to a question from a reporter in Toronto, Baird said the practice of requiring Eritrean-Canadians to pay a tax at the consulate is “unacceptable.”
“We share the deep concern that Eritrean-Canadians, and others, have for the work that has gone on at the consulate. We’ve repeatedly sent out strong signals that is unacceptable, it’s wrong and will not be tolerated,” Baird said.
“I gave instructions to my deputy minister several days ago to very clearly and unequivocally deliver a strong message that this activity must cease and desist, and if it doesn’t we will close the consulate,” Baird said.
Baird said the messages were sent in “recent days” but did not specify when a shutdown of the consulate might occur.
This is just the most recent action Baird has taken against Eritrean officials in Canada over the practice of requiring expatriates to pay what the UN has condemned as a worldwide “diaspora tax” on its nationals, valued at two per cent of their income. Last year, Baird expelled consul general Semere Ghebremariam O. Micael.
Eritreans here have complained that if they don’t pay the tax, their families back home will suffer consequences.
Fair enough to say that this is certainly one of the most egregiously hypocritical moves the Conservative government has ever made – and there have been far too many to count over the years. I would love to hear Mr. Baird explain to Canadians how it is acceptable for the United States to impose its infinitely more invasive extraterritorial tax laws in Canada but Eritrea’s paltry amateur-hour 2% shakedown warrants impending closure of its consulate? Could it be that Mr. Baird is in fact preparing a subsequent announcement that he will be ordering the immediate closure of the US Embassy as well? Should we give him the benefit of the doubt?
Unfortunately, it does not appear that commenting is possible with this article. No doubt this story will soon be reported in other outlets so we should all be ready to dig-in.
UPDATE: Just to be clear, in light of recent comments, whatever the relative differences in scope, scale or sophistication between the Eritrean and U.S. versions of citizenship-based taxation; both are repugnant, immoral and indefensible practices. Both countries should hang their heads in shame for even pretending that CBT can ever be justified. The diasporas of both countries should find plenty of common ground here, despite the taunting and ignorance we both have to put up with from so many of our “homelander” cousins.
I can not find any way to comment. Am I missing something?
I’m sure US Ambassador Bruce Heyman is quaking in his boots!
@charl
Commenting does not seem to be enabled for this CBC story. I’ll update with links to other related articles as they appear.
This is a good exercise for what John Baird should do to America in standing up for Canadians who are also USP. He should pursue legislation in regards to the Canadian-US tax treaty standing up for Canadian sovereignty and countering the infringement of Canadian sovereignty represented by US tax and compliance laws they wish to apply to Canadians.
I know Deckard is sending a communication to his Conservative MP and I am right now doing the same to my Conservative MP, an MP who has yet to report implementation of the FATCA IGA to her constituents in her weekly missives.
Un-bloody-believable hypocritical, Deckard. Thanks for picking this up.
We could all go to the CBC Facebook page and leave feedback there about the story. Maybe reach people that way if they let us post.
Imagine that for tens, or even perhaps hundreds of thousands of Canadian, the first “welcome to USA” will be from the IRS in the form a computer generated letter from the FATCA. Nice way to welcome your people home.
Perhaps David Letterman can lend us a joke tonight?
This is on Huffington Post: http://www.huffingtonpost.ca/2014/07/09/john-baird-eritrea-diaspora-tax_n_5572529.html — comments through Facebook.
So they are called ” Eritrean-Canadians ” but we are “United States persons residing in canada ” disgusting is right!
The Canadians doing the embassy closing dance against Eritrea is like using a sledge hammer to drive a tack. However this agreement signed with the U.S. allows them to go after Canadians who have left Canada for tax reasons. They think their coperation will be returned when they go after their overseas account holders. Lee Trivano said it best,”every shot pleases somebody”.
Truly AMAZING in terms of hypocrisy – can this be passed onto the Canadian media and somehow published/noted?
Cowards always pick on the one they can win with…..Eritrea yes USA no.
http://www.svt.se/nyheter/sverige/inget-stopp-for-eritrea-skatt
SSDC: Same Sh_t, Different Country
use translator
This is discrimination of the first order. You can sue the Canadian government on the basis that we are entitled to the same treatment? No?
If the USA adopted the “Eritrean diaspora tax” for those that left the homeland, I am sure many would say HIP, HIP, HOORAY!!!!!!
The Eritrean system is easy to understand, its fair and the expense to do the return yourself as in nil would save many from the compliance jackals.
Someone here at Brock posted the H&R Block schedule of fees to do US returns for expats. That was like $1,000. Many would jump for joy of a flat rate annual US Citizen tax of $1,000 with a simple half page form sent to the consulate!
Homelanders do not understand the thoughts of expats/nopats.;
1.) We are afraid and TERRIFIED of the process. The process in our home/native countries is straightfoward, its fair and its not fearful. In our home/native countries we are not fearful of a $60,000 penalty for not including an account that $10,050 on some form.
2.) The compliance industry has only made matters far worse. Look at the FATCA and then look at what some financial institutions are asking. The gap is as wide as the Grand Canyon. Someone is wrong and we think its the compliance industry. In theory, an expat/nopat should be able to function in a post FATCA world.
3.) We are sick of being told its a myth that services are being denied when its happening in Switzerland on one end and the UK on the other side of Europe. It is FACT the UK Government post FATCA even though excluded from FATCA in the IGA has excluded at least 3,000 US Citizens from their very popular and 100% safe savings account!!
Eritrea? PLEASE, PLEASE throw us into that briar patch.
Tear my hair out and cry to the stars hypocrisy.
They’re not even pretending anymore to be sensible. They are blatantly throwing this hypocrisy in our faces. I say use it in the law suit as evidence that diaspora tax collection, threats to collect, attempts to do so in Canada are illegal forms of discrimination. The government is admitting here that disapora tax collection or any information witch hunt to do so is wrong. Thanks for confirming this for us, Baird.
Oh, here is the form that they have to complete and remit with funds.
I can only dream the day thats what expats would have to do;
http://www.embassyeritrea.org/consular/PDF-docs/mehwey_gibri_2012.pdf
I for one am not looking for a “kinder” tax on expats. Such a notion is an oxymoron and is only a door for future abuse. Plus it just basically is a fundamental denial of the principles of what legitimizes the right to tax. No extraterritorial action by any government no matter how seemingly benign should ever be accepted by any other country.
Canada and the rest of the world, is clearly showing its hypocrisy and and cowardice. But the U.S. is the worst offender. Everyone who has signed an I.G.A. knows exactly what they are about or if they don’t then they should. No government has a right to abdicate its fiduciary duty to those within its borders. And the corollary principle is that no government can demand such an abdication on the part of another government. This is why the U.S. needs the 30% financial sanction. Extortion is the name of the game.
@Recalcitrant, that’s why I call the USA the Land of Importunity.
@Recalcitrantexpat, “No government has a right to abdicate its fiduciary duty to those within its borders.”
Before even that, No government has a right to abdicate its fiduciary duty to its own Citizens within its own borders.
Her Majesties Government in the United Kingdom after signing the IGA and putting in force enabling legislation, has stripped the ability of any of its own British Citizens, resident in the United Kingdom who are tainted by clinging US Nationality from opening a NS&I savings account!
So, a British Citizen born in the United Kingdom whose sole tie to the USofA is a British Parent (by descent from British Parents) who happened to have been born in the USA and lived there the requisite number of years is barred from opening a NS&I account.
http://www.thetimes.co.uk/tto/money/savings/article4123094.ece
Her Majesties Government did not even want to go to the trouble of being a non-reporting local client base FFI.
Oh wait, US Treasury says its a myth…..
The hypocricy is breathtaking.
@All
This recent conduct by Mr. Baird is very good news for the upcoming Charter challenge. Organizers should consider the following comment which appeared on this blog in January of 2012:
http://isaacbrocksociety.ca/2012/01/29/tax-treaty-in-conflict-with-canadas-human-rights-acts/comment-page-1/#comment-6569
Note in particular this part of the comment:
The complete comment follows:
@USCitizenAbroad – If you will allow me to provide a summary of the issues from the legal end of the telescope: s. 15 Charter protects discrimination by national origin. S. 8 protects privacy (unreasonable search and seizure) and privacy statutes have been previously ruled by Supreme Court of Canada to be “quasi-constitutional” in nature.
FATCA and the IGA singles Canadian citizens and residents out for different treatment based on national origin – obliges ALL banks and FFI’s, not just those choosing to do business in the US – to establish compliance procedures to hunt for them, creates incentives not to deal with them by increasing transaction costs in having them as clients (over and above costs of searching, if found, they have to be aggregated, verified and delivered to CRA). FATCA violates privacy rights. Once found, data belonging to “US Persons” and their families or business partners is sent to CRA and thence to a foreign government. That foreign government will use the data to seek to collect taxes and penalties on Canadian earnings of lawful Canadian residents that could not be collected and are not enforceable under Canadian law. All of the above is a pretty plain and obvious prima facie breach of s. 15 and s. 8.
These breaches are not the banks’ doing, it is the Act enacting the IGA that is doing it. That is government action and is clearly open to being restrained/halted under the Charter. Absent the government’s IGA blessing, no Canadian bank could FULLY comply with FATCA on its own for fear of breaching the privacy act provisions (the Act is called “PIPEDA” in its acronym), so you don’t need to worry about private vs public action issues with the Charter at this stage: this is a public, government-imposed act of discrimination and breach of privacy. If, in a non-IGA world, a bank subsequently sought to turn away Canadians with US ties, they may or may not face human rights complaints under the provisions you cite or possibly regulatory action for breaching Bank Act requirements. However, those actions, if any, would be for a different day.
The issue – the CENTRAL issue – in the litigation is going to be the question of (i) proving prejudice to actual people (hence the call for plaintiffs willing to act and eventually witnesses willing to testify – the latter, at least, with potential protections via publication bans to protect identity); at which point the onus shifts to the government to demonstrate (ii) that the identified prima facie breach is nevertheless a “reasonable” limitation of the guaranteed freedom in a free and democratic society within the meaning of s. 1. On point (i) above, Mr. Arvay will be using the evidence of willing plaintiffs and witnesses who may be willing to testify under a publication ban. He will be able to use the briefs filed with the Finance Commitee including the personal tales of woe therein.. Examples of RDSP income being taxed (directly or indirectly), tens of thousands in compliance fees, ruinous OVDI penalties, people at risk of losing their jobs if their employer’s records are turned over due to the nationality of a single signing officer, lawyers seeing confidential client trust account information compromised (I continue to be amazed at Law Society silence on this fundamental point), spouses being forced to sever joint accounts and transfer principal residences and marital strife occasioned by the long-forgotten national origins of one spouse, others who have been driven to depression, medication and alcohol by the stress, etc. All of these will be compelling tales of real prejudice to real people. The challenge will be in getting the stories edited and concise and from people able to deliver them in court at some risk of exposure (sealing orders and publication bans may well be possible for some witnesses).
Essentially questions along the lines of: “is the prejudice slight relative to the public good?” “Is the prejudice reasonably necessary and as little as necessary to achieve the public end?” etc. will need to be answered. This is the ground on which the argument will be decided and will thus be the main battleground in court.
One relevant issue is weighing the public good vs the private harm. The fact that the alleged public good is the advancement of the goals of a foreign government which are contrary to the practice of all civilized nations and roundly condemned in Canada when practiced by Eritrea will make the government’s task difficult as will the lack of proportionality of the means selected (the mere existence of bank accounts kept by lawful residents in their country of residence is no reasonable means of identifying actual tax evasion – for one thing, the tax on interest earned in such accounts would be negligible for deposits under a billion dollars given near zero interest rates prevalent today and the USG gets nothing like the same level of data from its domestic “client base”, so receipt of the information is hardly a necessary condition to combat tax evasion if they don’t collect or receive it at home). A foreign law does not get a “pass” to breach the Charter regardless of proportionality tests if indeed a foreign public policy goal is entitled to ANY weight in the s. 1 Charter balancing. The choice quotes of Finance and the government in Parliament make it clear that Canada is not voluntarily linking arms with the US in the FATCA crusade – our Minister made it plain that this is rotten policy and completely disproportionate to its alleged aims. I am sure Mr. Arvey will be able to have a field day using the Eritrean example as a contrast. The government will not credibly be able to support the IGA implementing FATCA as being good policy on the basis that FATCA is good policy – our government’s public pronouncements make that untenable.
The only rational ground for them to stand on in identifying a public good to justify the Charter breach is to argue that the threat of 30% withholding sanctions justifies the action just as Finance and the Minister did in the Committee hearings. The argument will be “the devil made me do it” in effect – the harm being avoided was greater than the harm inflicted. That alone would be worth the price of admission given the “FATCA Myths vs Reality” propaganda pieces put out by the USG claiming the whole world is embracing FATCA as some kind of brilliant world initiative. It is here that the exaggerated and ultimately speculative nature of the threat can be laid bare and dissected. As well, the argument of the impropriety of sacrificing Charter rights of A to advance the private economic interest of B will also figure prominently.
Firstly, the 30% sanction on US$ transactions can be evaded by a blind pig in a sandstorm. The only issue is transaction costs and these would be slight – likely about 1% or less for big banks. Swaps, derivatives, etc – we have a highly sophisticated and developed market for these things. Any competent commercial lawyer and Canadian financial institution would be able to acquire US$ needed to pay for imports, invest US$ in US securities, etc. Some transactions would be more expensive and need an intermediary to be completed as additional expense: that is not the fault of Canada but is a direct impact of US legislative action. It may or may not be curable via NAFTA or WTO actions, by way of simple example. In short, the threat is greatly exaggerated and there are numerous other potential remedies to address it without breaching Charter rights that were not attempted. Banks may PREFER the IGA to other options, but they don’t get to choose to sacrifice your rights to improve their profitability. I strongly doubt that Finance is going to have a strong factual argument to make about any of this since I doubt they seriously examined them. There was certainly no suggestion in the Committee testimony that anyone had spent five minutes looking at the fact that sanctions would simply NEVER be actually imposed on actual transactions – they would simply be re-cast to avoid them at far lower cost. There WOULD be a cost, but nothing like 30% and I am confident they never even went that far.
Secondly (related argument), the claimed sanction harm is speculative vs real life individual harm which Mr. Arvey will be able to demonstrate by the bucket full (see above). It would be argued by the government that reading down the IGA to exclude lawful residents of Canada (the obvious Charter cure as it is the least most intrusive step the Court could devise that would protect the Charter rights) would result in the IGA being cancelled by the US and all Canadian transactions subject to 30% withholding. This, I would say is pure speculation. The US may or may not cancel the IGA and we can cross that bridge if and when we come to it. Canada might be able to negotiate a different IGA that does not violate the Charter during a one-year cancellation notice period. More likely, the US may well accept the Charter modification with good grace. The fact that the Charter protects the same freedoms as the US Bill of Rights and in very similar language would lend credence to the argument that we should not attribute a hypocrisy and a deliberate attempt to commit human rights violations on the part of the US. These are not to be presumed by our courts who should in fact presume that faced with the facts and reasoned findings of a Canadian court, the US would seek to reasonably accommodate those concerns which its own Bill of Rights shares. An IGA minus lawful residents of Canada would still operate to ferret out US-resident tax cheats – the claimed object of FATCA in the first place. Excluding Canadian residents who largely owe nothing in taxes (they may owe FORMS, but that is not the object of our tax treaty) does no violence to US public policy objectives while guarding against Charter breaches in Canada. Side benefit is it prevents US citizens from being shunned in the provision of financial services as is happening elsewhere in the world and is resulting in both Democrats and Republicans examining “same country exclusion” to FATCA, essentially what the failed NDP amendment would have done.
Note, it is worth underscoring that our US Canada tax treaty, that the IGA is supposed to be an adjunct to (even if not passed by the US) deals with TAXES not FORMS. Due to the Treaty, few USC resident in Canada owe ANYTHING in US taxes. They may owe an annual form, they may owe a half-dozen FBAR’s and they may be open to threats of penalties. However, the POLICY of the tax treaty is that they OUGHT to owe nothing on Canadian source income in almost every case. We all know that is not true in fact, but it IS the policy of the treaty and we can hardly ask Canada to make it a public policy to seek out and punish ordinary Canadians who, unaided by the armies of tax accountants available to the rich, accidentally find that they have fallen into the numerous cracks in a grossly imperfect system. The point is that it cannot be presumed that all USC in Canada ARE tax cheats and that the US is not in fact getting whatever it thinks it’s fair share is through voluntary compliance given that very, very few Canadians actually would owe TAX based on the mere existence of bank accounts paying .5% per year!
Further, even if the US DID cancel the IGA, Canadian banks would be able to register and seek a means of complying. There is no evidence that they CANNOT comply – they were all taking steps to register before the IGA was announced as they had no idea whether one would be completed or, if completed, implemented. The US has announced deferrals to give good faith institutions time to get on side – there is no reason to assume they would cancel outright (there is, I believe, a one-year notice provision anyway). There is no evidence that the banks cannot find other ways to comply. The Swiss have no IGA (at least not on our model). All they do is report on the aggregate data without identifying and eventually turn away recalcitrant accounts if asked to do so – it may be that immaterial totals are discovered. Who knows? That is speculation for down the road. THIS IGA, that applies to all FFI’s and all Canadians goes too far.
Banks might argue that It would put their continued operations in NY etc at risk as they would be potentially become pariah institutions in the US unable to carry on their usual business. Those claims are merely speculative harms that can be dealt with as each of the handful of affected banks strives to comply in a non-IGA world (which itself is a very speculative worst case assumption were the Court to read down the IGA legislation to exclude lawful Canadian residents). If the US chose to punish Canadian banks who are legally incapable of giving them all the data they want by breaching Canadian law in their Canadian operations by, in effect, expropriating their US operations, that again is the operation of a foreign law in its proper domain: foreign operations in a foreign country. Besides – at present, Canadian banking data may not contain citizenship information. The banks would have to present actual data to show what they can and cannot do in the context of complying with FATCA to try to justify their potential future breaches of human rights codes. Future issue for a future day. They don’t get a free pass at the expense of ordinary lawful citizens today. The government has not attempted to figure out what data any Banks currently have or what “know your client” procedures might be implemented for new accounts to minimize or eliminate Charter violations. A very significant problem with the existing law, as we all know, is that data is turned over without notice to the affected party nor any right to due process. THIS law is arguably far too broad for that reason alone – even if you could lawfully “give up” US Citizens to the IRS, there is way too much “by-catch” (of former citizens, spouses and business partners, relinquished without CLN or even possesses CLN never asked for) in this structure to pass Charter muster. I am confident that the evidence Finance will be able to put in of having examined or attempted non-violative alternatives will be scant. Even within FATCA, a self-identified US Citizen does not get their data turned over automatically without notice absent an IGA – FATCA requires only that the bank try to persuade the guy to give up his or her data failing which the bank must, if all else fails, stop dealing with the recalcitrant person. If and when they are forced to fire their Canadian clients to please their US masters, we may have a different issue to face another day. This hardly justifies wholesale breaches of the Charter today.. Further, a foreign country does not get a “pass” to breach Canadian Charter Rights as being “reasonable in a free and democratic society” by pointing a gun at Canada and seizing all of its assets in the US. It won’t happen, to be sure, and is an “in terrorem” threat, but I don’t know how anyone can use such a threat with a straight face as justifying a breach of Charter rights in Canada to prevent a breach of NAFTA and WTO rights abroad. Foreign investments are protected by a variety of treaties and it would be pure speculation to assume that Canadian banks could not find a way to salvage their US investments without breaching the Charter at home.
We shall see what the judge says when the arguments are made. For the uninitiated, the above is a fairly reasonable precis of what they will likely look like (obviously a lot more depth and colour to be added). I’ve tried to capture the most likely government side arguments, although it will be no secret that I think they are not strong ones. As I have said before, the case is a good one. The possible outcome offers an excellent chance of ensuring the sound sleep of hundreds of thousands of ordinary Canadians who have had their lives turned upside down these last two years and deserve some peace of mind.
The Charter Challenge may also play a small role in helping to persuade the US to drop its ridiculous CBT policy. However, I will be happy enough to see Canadian citizens and residents returned to the status quo ante. If as and when the IRS ever tries to invoke the Tax Treaty to get CRA help in collecting tax (not penalties) from a permanent resident of Canada or a Canadian citizen for years prior to their naturalization, I look forward to round 2 of the Charter fight as I strongly suspect that the reasoning that would be applied by the Court in upholding this Charter Challenge would invalidate CRA’s waiver of the “revenue rule” in our existing tax treaty as regards non-citizens. That too may be “read down” to exclude lawful residents of Canada in due course (I don’t believe the clause has ever been used or challenged on Charter grounds: Alison C. may know).
Oh yeah: donate now, donate often.
I would think that a law that’s “quasi constitutional” but creates no harm to anyone would be viewed very differently than one that does. In other words, if it walks and talks like a duck, it’s a duck.
@Anne Frank
Thank you for your very encouraging words. You talk about the by-catch, which I refer to as false-positives. Shouldn’t the false-negatives play a part in exposing FATCA’s inability to accomplish its purpose – to expose all US persons with offshore bank accounts? What about the fact that those with more than $50K in the bank will be subject to discrimination based on their level of personal wealth?