I reproduce the late honourable Jim Flaherty’s letter to the editors of major US papers from September 2011. My comments will be indented and in italic type:
Canada and the United States are neighbours and have long been the closest of friends. We share a common border and we share many common values.
In other words, the United States has jeopardized the friendship by threatening FATCA’s economic sanctions against Canada, an ally and a friend. We have seen that some leaders in the USA think that the USA should use FATCA sanctions against Russia in the recent dispute over Ukraine. Flaherty recognized already that FATCA was economic warfare against an ally.
One of those values is fighting tax evasion. We believe in fair tax systems where everybody pays their share.
The Tories have admitted that FATCA provisions are unfair, and that they do not lead to everybody paying their fair share. Indeed, an extraordinary burden to support the US tax system overburdens those Canadians, who already have a heavier tax load than Americans, have also to contribute to the American system. This often happens, partly because the tax treaty is so out of date, and the US has its “Last in Time” rule.
Many Canadians, however, have become concerned about the impact of a proposed piece of American tax legislation – the Foreign Account Tax Compliance Act, or FATCA. I share their concern.
Flaherty penned this letter even before the Isaac Brock Society existed. Already, by the Fall of 2011, the Tory government was receiving complaints from grass-roots constituents. He knew from many of us that FATCA was unfair and that we did not like it. This lawsuit would not have existed if it weren’t for the Tories refusing the request of protection by hundreds of Canadians that had contacted them. That is why I said on the Independent Nation that Canada’s democracy is broken. Instead of listening to constituents who vote and who the MPs are supposed to represent, the Tory government made the Canadian banks their main client.
We appreciate efforts to combat tax evasion. In fact, our two jurisdictions co-operate to prevent it. But FATCA has far-reaching extraterritorial implications. It would turn Canadian banks into extensions of the IRS and would raise significant privacy concerns for Canadians.
Flaherty here admits that FATCA would violate Canada’s sovereignty through it’s “extraterritorial implications”. But he himself negotiated the deal in which the CRA, instead of Canadian banks, has become an extension of the IRS. He further states that there are privacy “concerns”. In other words, the Tory government knew already in 2011 that FATCA would violate the privacy Charter rights of Canadians, namely section 7, “Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.” FATCA is vast fishing expedition in which government collects private information without regard to these rights.
To be clear, Canada respects the sovereign right of the United States to determine its own tax legislation and its efforts to combat tax evasion – the underlying objective of FATCA.
But put frankly, Canada is not a tax haven. People do not flock to Canada to avoid paying taxes. In addition, we have existing ways of addressing these issues with the United States through our Bilateral Tax Information Exchange Agreement. As I said, we share the same goal of fighting tax evasion and we already have a system that works.
To rigidly impose FATCA on our citizens and financial institutions would not accomplish anything except waste resources on all sides.
Another issue, this one affecting more directly the large numbers of dual U.S.- Canadian citizens and their relatives living in Canada, is the IRS’s Foreign Bank Account Report (FBAR) filing requirements.
Most of these Canadian citizens, many with only distant links to the United States, have a very limited knowledge of their tax reporting obligations to the United States. These are honest and law-abiding people, including many senior citizens now caught in a nerve-wracking situation. Moreover, because they work and pay taxes in Canada, they generally do not owe any taxes in the United States in any event. Their only transgression is failing to file the IRS paperwork they were never aware they were required to file.
These people are not the targets of a crackdown on tax evasion. These are not high rollers with offshore bank accounts. These are people who have made innocent errors of omission that deserve to be looked upon with leniency.
Rather, these people are typically hard-working citizens of our two great countries.
Faced with the knowledge that they do have an obligation to file U.S. tax returns (even if they most often do not actually owe any taxes) they want to do the right thing.
But the threat of prohibitive fines for simply failing to file a return they were unaware they had to file, is a frightening prospect that is causing unnecessary stress and fear among law abiding hardworking dual citizens.
Flaherty understood that the FBAR/FATCA reporting requirements led to the frightening prospect of exorbitant and destructive fines. In other words, he knew that FBAR and FATCA were weapons of financial terror, and that many Canadians were understandably terrified. I would argue that the Tory government had the responsibility to protect these Canadians and instead chose to throw them under the bus. This shows that Canadians of US origin do not have equal protection from the Federal government, as say Canadians of Eritrean origin, and that the Tory government did in fact understand that they owed these people protection. Instead, Mr. Flaherty wrote a letter.
We support efforts to crack down on legitimate tax evasion. These measures, however, do not achieve that goal.
Rather, these measures have thrust the Tory government into a lawsuit, that will eventually go to the Supreme Court of Canada and will result in another stinging rebuke of their failed policies. The government knew what was right and chose instead to waffle and compromise the principles of fundamental justice.
Here is a comment on my MP’s Facebook:
Petros, I will ensure that the Vancouver litigators read and appreciate this letter.
Thinking about potential witnesses in the lawsuit, and recognizing that all witnesses must answer questions honestly, I wonder if Jim Flaherty — no longer with us — might have made a good witness for our side.
LOL Petros …. you got ’em snookered again !
@Stephen – at least his letter as published is available for the judges.
Time for Canada to do another 180 degree turn – in the right direction.
On another note – does Marc Emery meet the substantial presence test as a Canadian “jail” bird for four years?
Bravo Peter!!! This challenge and the fact Canadians are standing up to the bully will send a clear message around the world! I honestly expect that we will get “world support” donations to this challenge. The bully must be told to play by international rules or be defeated.
Marc Emery — good question, Bubblebustin!
According to this law firm, MARC EMERY IS A US TAXPAYER!
“This form of the substantial presence test is a veritable straightjacket provision under which residence in the United States automatically results from physical presence of 183 days. A taxpayer’s intentions regarding U.S. presence are meaningless. For example, a foreign national serving a prison term in the United States and wishing every minute that he were somewhere else, is nonetheless a U.S. resident under this test.”
@ bubble Bustin
bloody marvellous insight!!!…. lets do the high level math
USA has 2.3 million prisoners
5.9% of prisoners in USA are foreign
Total foreign prisoners approx 135K
70% of these are mexican
total non mexican prisoners in USA =40K
ermmm this is suspiciously close to the number of people that actually entred OVDP in all its hideous iterations
I suspect you would have to comb through the rest of the 190 or so nationalities of the 40K to work out how many are from “rich” countries like EU, Singapore, China, ANZAC, SA, BRICS, etc……. and how much potential there was to “soak” this sub population.
definitely worth doing… if Treasury can issue FATCA wwhich will raise 892 milllion USD pa, with global compliance costs already in the billions….
bubblebustin you have made my day
I have to say that my insight doesn’t told a candle to your math skills. I’m happy that I made your day, but I might have ruined Marc Emery’s via twitter…
Doe-eyed, I`m sure- but I am kind of hoping that the fatcanatics realise they can’t win this and give up early.
The Harper government should have been first in line just to tell the US Treasury to go screw themselves instead of just bending over and taking it in the cornhole,saying thank you and asking for more. Harper and cronies are just spineless b-strands the lot of them.
It is immoral and wrong to accept such a deal and I wish and pray that the government come to its senses, and fight potential sanctions with sanctions of their own. They can do this and it is possible. But no, they only know the submissive pose of dropping trousers, bending over, and spreading those buns for our abusive neighbors to the south. How disgraceful .
I think the Tories will never back down, even if most of them (if not all of them) know they are wrong. It would be a sign of weakness. Instead, they will fight to the very end. I’m hoping Stephen Harper will retire, then two or three Tories will fight for the honour of running this poor Party, cracks in the Party will form when some MPs won’t get what they want. Then, it will be possible to rally some of the softer Conservatives to our side.
LivingToRenounce, unfortunately I think you are right. Stephen Harper is too proud and will show no sign of weakness. Undoubtedly he also bullied Jim Flaherty into his government’s current position. I had great hope for Flaherty remaining in a strong stance, but it was misdirected, because Mr. Flaherty had to do the bidding of his Prime Minister.
Harper hasn’t realized that it takes an intelligent team to run this country. Bullies have no place in Canadian government. I am confident that he will be looking for a job next election. Canada will not put up with such a one man show!