Update: August 11, 2014
In response to Hazy,
“I believe all IGAs have a most favoured nation clause (MFN) which means that if one country gets a better deal, than other countries can obtain the same.”
You are correct BUT, the most favored provision solely applies to provisions under Article 4 and Annex
1.The “Reciprocity Clause” is an Article 3 provision therefor the “better deal clause” does not apply.
Here is that section on most favorable language;
“Canada shall be granted the benefit of any more favorable terms under Article 4 or Annex I of this Agreement relating to the application of FATCA to Canadian Financial Institutions afforded to another Partner Jurisdiction.”
Sooooooo Canada was outsmarted by the likes of Czech Republic, Jamaica, South Africa, Mauritius which got a far better deal.
*********************************
George requests Domino’s comment (just below) be its own post, asking
The following recent comment needs to be on the front page as this is hot news. Basically, very recent IGA agreements have a sunset clause if the USA does not provide reciprocity.
What does this tell me about Canada? You guys need to notify your friends in the NDP, maybe post what you send off to them. Demand Canada gets the same deal!!
Here is a link to the South Africa IGA;
And yes, that new clause is in there.
From Dominio:
I’m not sure if the Obama administration has made any progress with Congress regarding FATCA reciprocity since this post was published, but I’d like to refer you to the last line of the post:
“The proposal would be effective for returns required to be filed after December 31, 2015.”
Recently I perused a few of the Model 1 IGA agreements, and noticed that quite a few of the more recent ones (e.g. Czech Republic, Jamaica, South Africa, Mauritius) contain the following clause at the end of Article 3:
“This Agreement shall terminate on September 30, 2015, if Article 2 of this Agreement is not in effect for either Party pursuant to paragraph 9 of this Article by that date.”
Now I’m the first to admit that comprehending the endlessly recursive legalese of the U.S. Tax Code can make your head spin, and I invite others here to verify (or more likely refute) my conclusion here, but it appears to me that that a large number of IGAs will automatically terminate on 30 September 2015 unless DATCA is fully operational. Meanwhile the struggling effort to get congressional approval for DATCA is only aiming for compliance by 31 December 2015.
The Article 3 clause is quite explicit. There doesn’t appear to be any discretion on behalf of the parties. They will simply terminate.
Additionally,
I’ve read unbelievable estimates of the cost FATCA compliance for FFIs running into the billions for some of the larger banks alone. I thought these claims were somewhat hyperbolic until I read some of the relevant tax code,associated regulations, IGAs and FFI agreements. The compliance departments of FFIs will be relying more on lawyers and accountants than the IT department in this regard.
Anyway, my point is that this compliance burden is is purely for the identification of U.S. persons. DATCA’s compliance burden will currently require identifying residents of 35 Model 1 IGA partner jurisdictions, with another 60 or so in the works. I haven’t seen this asymmetry being mentioned elsewhere.
It’s my opinion that the U.S. financial industry (and their lobbyists) wield sufficient power to unilaterally kill FATCA; however, the biggest players in the industry might benefit as compliance costs crowd out the smaller players (more whales vs minnows). I’m curious to see how this plays out.
George also says:
Brockers in Canada need to ask their MPs why didn’t they negotiate that deal!! More importantly when will Canada get that deal?
I just looked at the Canada IGA and Canada will not get that deal under the most favored rule!!
This is from Canadian Parliamentary Hearings, the wishy-washy answer from General Director, Tax Policy Branch, Department of Finance, Brian Ernewein to NDP MP Murray Rankin’s question on reciprocity:
*http://openparliament.ca/committees/finance/41-2/31/brian-ernewein-1/?page=18
5:15 p.m.
NDP
Murray Rankin Victoria, BC
All right.
We talked earlier about the reciprocity of this, and a lot of people have been challenging that notion that this was reciprocal. Under international law, as I understand it, there need to be gains to both countries as a consequence of an international agreement such as this. I’d like to know if any analysis has been done of the gains to Canada we achieve by entering into an agreement of this sort.
I understand the lack of economic sanctions is a gain, if you will, but what about other gains for us? Is there a reciprocal agreement that the United States has entered into? Talk about those things, the gains and the reciprocity.
5:15 p.m.
General Director, Tax Policy Branch, Department of Finance
Brian Ernewein
Thank you.
Thank you for acknowledging at least that there is this point about issues avoided. I think there also is the point that we do gain some additional information immediately from the U.S. in relation to the collection of taxpayer identification numbers, which will help in our own data matching. That’s immediately.
It’s not delivered immediately, but we also do have the commitment to full equivalence, if you will, over time.
There is one other thing I would add and you might consider this a soft point, but I think it’s worthwhile. Even though FATCA itself started off kind of badly, in the sense that what it first proposed raised a lot of issues for a lot of us and a lot of taxpayers, the development of the intergovernmental agreement seems to us a good thing in terms of advancing exchange of information. It still has a lot of issues and in particular with the U.S. on citizenship, but as a matter of principle, it seems to us to be something that enhances taxpayer compliance.
The point I want to make is that I think as a result of the discussion around FATCA and the intergovernmental agreements, countries, particularly the G-20, have now moved forward in trying to adopt an automatic exchange of information procedure or standard. It’s coming to be known as the common reporting standard. It’s still under development, but G-20 finance ministers and G-20 leaders have committed to working to bring that to reality, and whether it’s grudgingly or not, I think the FATCA discussion and debate has sort of led to some of that evolution.
I sent this to a journalist two days ago:
I thought you might be interested in this more realistic commentary [than General Director, Tax Policy Branch, Department of Finance, Brian Ernewein (above*) ] about any U.S. reciprocity to other countries per the IGAs that come from Treasury, not from the Congress of the USA: http://www.compasscayman.com/cfr/2014/08/08/U-S–can%E2%80%99t-deliver-on-FATCA-promises/ that Canada’s Finance expounds*, along with the also false assertion that Canadian registered accounts are exempt (yes, exempt for the banks / financial institutions not for the individual *US taxpayer* at all!).
Making sense of US obligations
Members of the U.S. Congress, one chamber of which having changed party control since FATCA’s passage, have expressed skepticism and concern about Treasury’s handling of the law. Not only has Senator Rand Paul introduced legislation to repeal most of FATCA outright, a policy recently endorsed as well by the Republican National Committee, but several other members have authored letters challenging various aspects of Treasury’s implementation, and in particular the handling of IGAs.Rep. Bill Posey, a member of the House Financial Services Committee, authored a critical letter to the Treasury Department characterizing the IGAs as “not authorized, or even mentioned, in FATCA,” and concluded that “flaws evident in the IGAs being negotiated to implement FATCA reflect flaws in the Act itself.” Of greater significance for the law’s future, he also suggested that “it is difficult to conceive of any circumstance that would justify imposing such an expensive and counterproductive domestic mandate [as reciprocal information sharing].”
Foreign governments might be excused for finding this all very confusing. After all, many were promised by the Treasury Department that the U.S. would give what it receives. In reality, the obligations specified under the IGAs only commit the U.S. to “pursuing the adoption of regulations and advocating and supporting relevant legislation to achieve such equivalent levels of reciprocal automatic information exchange.” This is a convoluted way of saying that the Treasury Department really, really wants to provide reciprocal information, and it’ll even ask nicely for actual Congressional authority to do so.
That’s right, the Treasury Department – the only U.S. body involved in authorizing, negotiating or signing IGAs – has no authority to provide reciprocal information. And since the agreements are not being submitted to the Senate for its advice and consent as constitutionally required for ratification of treaties, they haven’t true force of law within the United States. Although Treasury prefers not to advertise its need for additional authority, it’s been implicitly acknowledged by inclusions of provisions asking such authority in the administration’s budget requests, as well as by officials speaking behind closed doors.
Real reciprocity unlikely
A comparatively simple rule requiring U.S. banks to collect and report interest payments to non-resident accounts took over a decade for Treasury to push through and successfully implement. That rule met significant Congressional opposition, but ultimately lacked the significance to spur direct legislative challenge. Treasury cannot pull the same trick with FATCA, where the costs to U.S. banks would compel a real response. They have no choice but to rely on Congress for reciprocal authority, which for both political and economic reasons is unlikely to be forthcoming.
As indicated by the Posey letter, there is no domestic appetite for imposing the kind of reporting on American banks as has been placed on the rest of the world. A large reason Treasury has been able to act beyond its authority thus far is because those most afflicted by FATCA lack political power in the U.S. system. The same cannot be said of American banks, which hold considerable influence but thus far have sat on the sidelines of the FATCA debate.
A clear ideological divide between branches also makes reciprocation unlikely.
Canada signed the IGA so already agreed. This is what Canada could do: Unilateral action just like the US did with the original FATCA legislation. Canada could say that by September 30 2015, if the information is not reciprocal, if promised, then Canada will levy a multibillion dollar charge against the USG for Canadian FI compliance costs.
Once again, we see stunning evidence of the utter incompetence of Harper and his government in terms of negotiating skills and economic management, which their spin doctors have been claiming is their virtue and why people should vote for the gobbling turkies.
I shudder to think what nasty little mistakes, oversights and screwups are lurking in all those “free trade” agreements Our Great Economist Harper has been negotiating in secret and without consultations with the public or Parliament.
Morons, the lot of them. Vote ABC.
And we have Jim Flaherty to thank for this, the Mike Harris re-tread whom commentators keep extolling as having been a great economic manager for Canada before he left caucus and then died. B.S. Spin and nothing but spin.
Good grief, if South Africa has better sense and negotiating skill than our current Ship of Fools steered by the Great Fool in 24 Sussex Drive, Canada is really screwed. Pathetic.
Just tweeted it to my MP. He doesn’t deserve email anymore, I’m afraid.
I notice that the date of birth is becoming the substitute for TINs.
So they can narrow down the names by 365:1 to ID people.
In the end the rules of the road for resident dual citizens are going to be written by the courts.
All this information will be used for other purposes than taxes that’s a give in. If you have someone’s bank statements you can build up a pretty good picture of their life.
Data is what FATCA is all about not taxes.
It looks like the UK has also been granted a ‘drop dead’ clause of sorts.
3. The Parties shall, prior to December 31, 2016, consult in good faith to amend this Agreement as necessary to reflect progress on the commitments set forth in Article 6.
Article 6 deals with reciprocity.
http://webarchive.nationalarchives.gov.uk/20120913103048/http:/www.hm-treasury.gov.uk/d/facta_agreement_tax_compliance_140912.pdf
Basically the UK is giving the Yanks until 1/1/2017 to convince the US Congress about all the wonders of FATCA for US FFIs.
4. Documentation of Accounts Maintained as of January 1, 2014.
With respect to Reportable Accounts that are Preexisting Accounts maintained by a Reporting Financial Institution:
a) The United States commits to establish, by January 1, 2017, for reporting with respect to 2017 and subsequent years, rules requiring
Reporting U.S. Financial Institutions to obtain and report the date of birth of each Account Holder of a United Kingdom Reportable Account as required pursuant to subparagraph 2(b)(1) of Article 2; and
b) The United Kingdom commits to establish, by January 1, 2017, for reporting with respect to 2017 and subsequent years, rules requiring
Reporting United Kingdom Financial In stitutions to obtain the U.S. TIN of each Specified U.S. Person as required pursuant to subparagraph 2(a)(1) of Article 2.
I fear that by 2015, all the names and information of US expats will already have been transmitted.
What good then is the question of reciprocity? They might want to set up automatic exchange for the future- but the expats information will already have been given and I`m not sure if that isn’t all that was needed. Who knows-maybe America will scrap the idea of FATCA by then, feeling it is impossible to impose, and because they already have the information they need? When you think about tit- who makes deals in which they are supposed to give in advance with a promise of reciprocity sometime in the uncertain future? Why didn’t they do a tit for tat right off the bat? (Or for that matter- why didn’t America clean up Delaware, Wyoming and Nevada first to get all those lost taxes?)
Pingback: Why did Canada not have a ‘drop-dead’ date in their IGA signed with the US for real reciprocity from the US as does, for just one of the smarter countries, South Africa? « GATCA
@Schubert…but but but they were involved in “lengthy negotiations” and please do not forget;
“These negotiations by Canada’s former Minister of Finance, the Hon. Jim Flaherty, lead to an improved situation for Canadians affected by FATCA.” Weston, MP
Memories…..memories…….
http://isaacbrocksociety.ca/2014/03/06/a-letter-from-john-weston-regarding-the-iga-we-need-to-educate-the-mps/
South Africa, yes South Africa, and a bunch of other countries managed to “negotiate” a better deal than Canada!!
The truth is that Canada swallowed the hook, the sinker and the line of the early fill in the blank template.
SOUTH AFRICA and a few others did the REAL negotiations!!
The Conservatives in Canada not only sold its CITIZENS down the river, they did a piss poor job at it.
Schubert, you have been banging the drum on just how bad they are……I was left scratching my head. This exposes it all, they are not fit for purpose.
Very early on I just assumed the Conservatives would have simply sold landed US immigrants down the river but would have protected its citizens within its territories. THAT might have had some political standing!!!
The United States is a FOREIGN COUNTRY, why can’t the politicians get that!!
@George
But… but… but… but its THE LAW.
CBT is THE LAW.
And America has a RIGHT to double tax it citizens wherever they live!
( sarcasm )
@Polly………because because because………They are Exceptional.
I read the following the other month and was not sure if I should laugh or vomit;
http://en.wikipedia.org/wiki/American_exceptionalism
@All Brockers….apologies in advance if my normally reserved self has gone over the top, I am just fed up.
@Polly, want another laugh? I guess my cereal was fortified with vitamins this morning.
“A U.S. passport is the most valuable travel and identity document in the world because it identifies the bearer as a U.S. citizen” 7 FAM 1300.
How about this for an explanation?
http://en.wikipedia.org/wiki/Narcissism
They are so full of themselves in trying to “make sure” that anyone knows exactly what they are doing when they want to dispose of their US Citizenship!! It must really hurt their inflated over rated egos.
What is sad, really sad, is that all these former/ex pats were Good Will Ambassadors for the United States. I writer were in past tense.
Honestly, I should have seen it coming when they started pressing that a “dual” had to enter on a US Passport. That was the warning sign as few other countries on earth require that.
@Schubert1975, I am not even Canadian but this has me po’d. What a ship of fools when so called less influential and less developed nations do a far better job at negotiations than Canada.
Again, a thank you to Domino in SA for spotting this incredible find.
We need to make a list of all the countries that have this far better deal to throw into the faces of our politicians.
In the United States they have no problem refering and looking at Canada as a foreign country, thats the mind set and its correct. How come Canada will not look at the United States as a foreign country?
I believe all IGAs have a most favoured nation clause (MFN) which means that if one country gets a better deal, than other countries can obtain the same. Article 7 paragraph 1 of the Canada-U.S. IGA states in part “Canada shall be granted the benefit of any more favorable terms ….afforded to another Partner jurisdiction…”
Paragraph 2- the United States shall notify Canada of any more favorable terms, and such more favorable terms shall apply automatically…. unless Canada declines the application thereof.
Although it appears that SA and other countries got a concession from the U.S that Canada did not., is it enough to invoke the MFN clause?
We should ask our government representatives this question, Hazy.
It is so maddening that reciprocity was brought up in our submissions to Finance again and again and again. I know that I on more than one occasion stated in (likely thick file of correspondence with Finance Minister Flaherty, Kevin Shoom, Michelle Rempel, Prime Minister Harper and others — or perhaps it all went to the “round file”) that nothing should be signed until the US had the same reciprocity terms as Canada.
It is absolutely shameful and it makes me sick that other countries’ negotiations included these terms about reciprocity that Canada ignored. It is not enough, Brian Ernewein, your answer to NDP MP Murray Rankin:
@George
Of course the job of managing a country as “exceptional” as America should not have been left to mere mortals. Those who do should be elevated to god-like status to match. Is it possible that the polarization we see in the US right now may just be a bad case of cognitive dissonance in the narcissist, with so many people vilifying each other for revealing the weaknesses that prove America’s not the nation they want to believe it is? No one likes an unflattering reflection of themselves, so blame the mirror (or the expat, etc).
“America” is a state of mind, and “Exceptionalism” is just another word for bubble, and the fact is, the US is NOT the country many people want to believe it is.
@Hazy, “I believe all IGAs have a most favoured nation clause (MFN) which means that if one country gets a better deal, than other countries can obtain the same.”
You are correct BUT, the most favored provision solely applies to provisions under Article 4 and Annex 1.
The “Reciprocity Clause” is an Article 3 provision therefor the “better deal clause” does not apply.
Here is that section on most favorable language;
“Canada shall be granted the benefit of any more favorable terms under Article 4 or Annex I of this Agreement relating to the application of FATCA to Canadian Financial Institutions afforded to another Partner Jurisdiction.”
Sooooooo Canada was outsmarted by the likes of Czech Republic, Jamaica, South Africa, Mauritius which got a far better deal.
@Calgary, this comment may be useful to include in the main post. Cheers, George
@George
Another laugh? More like ((((( sob )))))!
I’m sure that Canadian banks will be thrilled to know that they will be enjoying FATCA in perpetuity while others won’t. With these other nations having negotiated a kill date for FATCA reciprocity, it would appear that nations like Canada are content with just the promise of it – in perpetuity.
Unfortunately the MFN clauses in Article 7 of both the Canadian and South African IGAs only apply to “the benefit of any more favorable terms under Article 4 or Annex I of this Agreement”. Unfortunately the sunset clause in the South African IGA (and presumably all others that contain such a clause, although this should be checked) is contained in Article 3, so therefore not applicable under Article 7.
I undertook a cursory examination of Article 4 and Annex I of both IGAs, and they seem identical except for interchangeable use of the words South Africa & Canada. A more thorough investigation of these and all other IGAs could (perhaps should) be undertaken by a Brocker with the necessary text/data processing skills to see if any such more favourable terms exist, but I seriously doubt it; those Treasury attorneys are nothing if not skilled legalese drafters, and they negotiate with the world’s biggest stick.
Our pudgy eunuch of a prime minister only has balls when it comes to standing up against minorities and environmentalists. I’m so angry I could spit!
Under the guise of “harmonizations” like the Security and Prosperity Partnership (SPP) I believe that the North American Union is rapidly becoming a reality, even though they have not put a name to it, unfurled a tri-national flag and issued Amero bucks … yet. That might be why Canada and Mexico didn’t do serious negotiations with the USA and signed their IGAs essentially “as is”. The IGA is just a trivial, transitional and transient piece of legislation to them because the real deal is the NAU which they are keeping out of sight, out of mind, until all the pieces of the “union” are so cemented in place that they believe no amount of awakened protest can break it apart. That’s why the stomping of the jackboots is getting louder and louder these days. That’s why, no matter what their sinister, shadowy schemes are, we have to push back against FATCA before the cement on the NAU hardens. The current FATCA databank then becomes a DATCA databank for the tri-national fusion — ALL persons are affected, not just “US persons”. Waiting to protest and challenge is not an option. We must push back now. Surgite!
Yes, vote ABC – anyone but Conservative! I’d rather have the snotty nose offspring of a brilliant socialist and a crazy woman than continue being subjected to this current government. It wouldn’t be the first or the last time our country’s been led by a figurehead. (End of rant).
Here is a list of the Model 1 IGA agreements with a sunset clause:
Belgium
Costa Rica
Czech Republic
Estonia
Gibraltar
Hungary
Honduras
Israel
Jamaica
Latvia
Liechtenstein
Luxembourg
Malta
Mauritius
South Africa
Slovenia
The first such agreement signed appears to be Costa Rica on 26 November 2013
As much as I hate the thought, EmBee, my thinking is similar to yours. I never wanted (or want) to see that day.
For all concerned about Canada’s Sovereignty: http://www.adcs-adsc.ca/