Is this what CRA, Banks & Compliance Industries have not been Upfront about? IOW, "US Persons" in Canada "Screwed"
http://t.co/Roy2tWwvLZ
— U.S. Expat Canada (@USExpatCanada) August 29, 2014
I just came across a rather disturbing bit of information that destroys any sense of security we’ve derived from the statements that “CRA will not collect taxes from anyone who was a Canadian at the time the tax was incurred.”
The author claims that Canadian Financial Institutions are not signed on to the Tax Treaty and that the IRS can take the information received from the CRA, contact the bank directly and ask the bank to collect penalties (not taxes and interest?) from the account holder and remit to IRS.
This doesn’t sound correct to me as the IGA may allow the banks to give info to CRA but I’m not aware that the IGA nullifies PIPEDA, which would still stand. If the argument is made that the “Treaty” trumps domestic law, and they can get away with applying that, we are in serious trouble. Allison’s arguments become very important and the government should have listened.
This position seems to depend upon a relationship between a Canadian bank that has branches in the US:
“IRS will go with a demand to collect penalties from the account holder’s information they have received from CRA to Canadian Banks operating in the USA, namely RBC, TD, HSBC etc. Once the USA branch of Canadian Banks gets the demand letter from IRS, they will forward it to respective Canadian Branch where the account holder has account with the banks. As far as bank operation goes, they will either collect and remit the penalties on behalf of IRS or freeze the account until the penalties are paid.
If Canadian banks don’t comply with IRS demand, any payment coming to them from the U.S. will be subject to 30% withholding tax on gross income. They will be also forced out of doing business in U.S. capital markets and markets that conclude contracts in U.S. dollars, 1.e. the commodity or petroleum market.
U.S. persons now must comply with USA tax laws, or risk the discovery by the CRA and IRS which can make their life miserable and wealth diminished.”
If this is truly the case, why haven’t the compliance community/politicians pointed this out? Is this a willful omission on their part? This information comes from a company in Vancouver “Cross Border Tax Service.”
Those of you in the legal community, please weigh in on whether a subsidiary branch of a Canadian bank in the US can force the Canadian parent company to collect/withhold. It sounds rather tenuous to me yet as we have seen in the last few days, they seem to be able to do whatever they want.
Here is the article.
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Thanks Neill!
I read Tim’s comment/link thoroughly.That case was in 1989. I would imagine back then, no one would ever have believed it if they were told the US would pass a law that would be imposed on all the other 190 countries of the world and that there would be nothing they could do to stop it. Similarly, given Canada’s acceptance of US demands in this case, I have no trouble imagining that decision being struck down or some law being changed in order to escape from some new threat/sanction from the US. Plus, there are long-term residents of Canada who are US Persons who might not be protected by this because they were not “Canadian at the time the tax was incurred.” I am surprised at the number of expats who have never taken Canadian citizenship.The Hon Sinclair Stevens stated strongly that the Charter protections applied to all residents of Canada but whether that would make a difference, I don’t know.
Thank you Moonglow (love your moniker!). The first section on levying against banks, strikes me as something to check very thoroughly; am pasting only section referring to anyone “outside the US”
5.21.3.2 (12-04-2013)
Levy on a Domestic Branch of a Financial Institution
1. There are instances where funds held offshore can be reached by a levy if the bank has a branch in the U.S. or in a possession of the U.S.
Treasury Regulations Section 26 C.F.R. 301.6332–1(a)(2) outlines the procedures where a bank is in business in the U.S. with deposits held in a branch outside the United States
The regulations provide two different sets of procedures with regard to a levy on bank deposits held in offices outside the United States depending on whether or not the taxpayer is or is not within the jurisdiction of the U.S. court at the time the levy is made.
1. If the taxpayer is not within the jurisdiction of the U.S. court at the time the levy is made, then:
• The notice of levy must specify that the Area Director intends to reach such deposits,
• That the bank is in possession of (or obligated with respect to) such deposits in an office outside the United States or a possession of the United States, and
• That such deposits consist, in whole or in part,
of funds transferred from the United Statesor a possession of the United States in order to hinder or delay collection of the tax imposed by the Code.I can imagine the US misapplying this last point, in the same way they chose to misapply FBAR and claim that the only thing that matters is the liability (origin of funds irrelevant) and/or the IRS will simply impose/assume it as fact, that the only reason to have money outside the country is to avoid tax (hmmmm doesn’t that sound familiar????)
@ Anne Frank
Thank you so much for your level-headed, common-sense response to this fear mongering. I was so hoping you would respond to this frightening posting and you did not disappoint. Your intelligent, thoughtful introspective (& humorous 🙂 contributions are consistently spot-on.
@Anne Frank
Appreciate your description of the Swiss situation.
Without asking you to commit to a long explanation, could you kindly point me to the section(s) in the Bank Act you are referring to?
@Tricia
One issue is the case decided back in 1989 was on the basis of Ontario not Federal “common” law. So it is more of a provincial issue than a Federal one. Also the same type of prohibition exists as “statutory” law under the Quebec Civil Code.
@Tricia Moon – the simplest way to put it, without launching into a whole essay on the topic is this:
– since banks accept deposits (insured) and lend money at many multiples of their capital, the business of banking is subject to severe limitations. In essence, banks may not carry on ANY line of business anywhere inside or outside of Canada except with regulatory approval. The purpose of all of this is to ensure that banks repay their depositors!
– the general rule is that each branch of a bank is essentially a separate legal entity: you can’t seize money from branch x of bank y by showing up at branch z. These rules too are generally applicable around the world.
– when you deposit money with a bank, you have a contract governed by Canadian law that the bank is going to pay you back your money. If the bank is subjected to US law by having an office in New York, you as a customer are not. Trying to seize money on deposit at a branch in Guelph by showing up with a writ in New York City may or may not oblige the bank to pay under New York law – it will not however the bank a valid release from its obligation under Canadian law to repay the deposit. This is why neither the IRS nor other creditors do that. It doesn’t work.
Sections 461 and s. 578 of the Bank Act contain the provisions regarding the situs of a deposit liability (the branch).
Anne frank I understand what you are saying but the us revenue manual has a procedure for doing just that.
The question becomes does it simply become their cost of doing business.
@George: what can I say except that any payment by the bank to the IRS does not release the bank from the obligation to pay their depositor in Canada? Bank Act s. 461-462 are quite explicit about where deposits are situate (at the branch) and that writs of seizure etc. have to be served at the branch where the deposit is actually located. That is the law of Canada and obeying the law of the US in the US is not going to help the Canadian bank when it comes to satisfying their obligations to their Canadian depositors. That is why the Banks wanted an IGA approved under Canadian law since it was no use to them that US law obliged them to violate their customers’ privacy rights: they needed Canadian law (which governs their Canadian deposits) to authorize them to do the deed.
There are lots of things to worry about and lots of things to dislike in the IGA, Bill C31, FATCA and CBT in general. All I am trying to do is assure people that they needn’t let fear and paranoia get the better of them. These concepts in our Bank Act are pretty fundamental and are quite similar to analogous rules in similar statutes around the world. The US has gone a long way towards attempting to rewrite global laws in its own image and for its own, unique benefit. They haven’t gone anywhere near this far yet and they haven’t exactly had an easy time with FATCA (the battle is far from over as I think we all know). I’ll agree never to say never – our laws might get changed yet again, I suppose. I for one am not going to lose sleep over that possibility at this stage – there are far too many real and present things to be angry about without boxing at shadows.
@Anne Frank
Thank you for this. Makes sense. I will read the sections you’ve indicated and get my head wrapped around this. Much appreciated!
But maybe people should get worried? Maybe people should transfer their accounts to a place that doesn’t have offices in USA. Maybe that would wake the banks up on what they have agreed to?
Anne frank that is a reasonable way of looking at it.
But having said that if you can use a fi that has no Usa presence then you can rest easier.
@Anne Frank
You are writing about Canada. What about the other 190+ jurisdictions in the world? Would you be so kind to share your opinion about them?
Following quote shows that they do have some type of stats on renunciations, and that they are fully aware that they are extorting the fees from many Canadian citizens – as Canada was named in the top three countries for renunciations.
“According to a State Department spokesman, the wait time for an expatriation interview has increased to as much as six months in some areas, while it is as short as two to four weeks in others. He added that three-quarters of all renunciations are processed by consular offices in Canada, the U.K. and Switzerland.” http://blogs.wsj.com/totalreturn/2014/08/30/government-fee-to-give-up-u-s-citizenship-is-raised-fivefold/
The quote demonstrates that when deciding to implement this astronomical fee hike, the US State Department and their overlords were fully aware of which countries would be most effected by the extortionate fee increase – with Canada one of the top three. They were fully aware that Canadians of US origin/inherited US status increasingly want nothing to do with the jeopardy that US citizenship poses to them and their families – as reflected in the numbers of renunciations processed by consular officials in Canada.
That means that the US could give a damn if this makes Harper look even more like the US collaborator and traitor he is – willing to assist the US in profiting off the Canadian assets of ordinary Canadian families and jeopardizing their legal local accounts and personal data via the FATCA IGA and enabling legislation, subverting the democratic process and hiding the FATCA legislation in an omnibus bill – C-31. The US could care less about the impact on its so-called ‘friend’, ally, neighbour and trading partner – and it again makes mockery of the promise by previous US ambassador Jacobson that “My message on this one is to sit tight. We are not unreasonable. We are not unsympathetic. We are not irresponsible.” http://canada.usembassy.gov/ambassador/news-and-speeches/18-october-2011-ambassador-jacobsons-remarks-to-the-canadian-club.html . He had already acknowledged that: “…There are two particular problems with the operation of these rules here in Canada. First, there are so many dual citizens, typically by birth, probably more than a million. So this issue is much more common here than in any other country in the world.”….. and Jacobson concludes by saying; “…..The relationship between our two countries is in full bloom.”
Oh yeah? What can you call a US hike in fees to renounce up from 450. to 2350. which represents a punitive head tax – or a slave price – buying out our freedom from US lifelong servitude? What kind of relationship is it when the US institutes that barrier to renunciations knowing fully that it will have a particularly outsized impact on Canada and Canadians due the the historical intermingling of people and cross border interaction?
It should signal to all of us that whatever the US says is BS – what really counts is what it actually does and how it does it. And what we see and smell is a BS attempt to slow renunciations and to generate revenues from Canadians – with no fear that the Harper government will lift a finger to assist its own citizens and residents. And without any notice.
@X – can’t give much by way of an opinion about the rules in other jurisdictions beyond saying that banking laws are pretty uniform around the industrialized world at least (including, gasp! the United States). The idea that a deposit is located in the branch where it is held not in the bank generally, the idea that seizures/court order enforcement etc much happen in the jurisdiction where the deposit is: these are all common concepts that BANKS demanded generations ago (19th C) to facilitate their expansion both nationally and internationally.
Obviously I don’t exclude another FATCA brain cramp out of the US, but honestly I think the intelligent folks in that country know this was a mighty stupid, counterproductive move. Can’t say it won’t happen again, but even stupid people learn from their mistakes and the full cost of this mistake has yet to be delivered to Congress. It will not be pretty.
I would very much like it if a responsible Canadian politician made the US Ambassador retract these words of ex-Ambassador Jacobsen in 2011 (or, better still, act on them!):
“My message on this one is to sit tight. We are not unreasonable. We are not unsympathetic. We are not irresponsible.”
We can’t afford to sit tight any longer. They have proven themselves unsympathetic, unreasonable and irresponsible both in enacting a pig-headed set of rules (of which FATCA is only the straw that broke the camel’s back, FBAR and CBT being the other leading insults) directed at harming the US diaspora and, having had the stupidity and counter-productiveness of their policies pointed out to them in living colour, having failed to take action, to give any signs that action is possible or even any hope that waiting for action is other than insanity. The only response possible at this stage is the Charter litigation to force them to do what they ought to have done without litigation.
@Anne Frank, the current ambassador is mum on FATCA. He has been too busy reading off the list of demands the US has for Canada to obey:
ex.
http://www.canadianbusiness.com/lists-and-rankings/most-powerful-people/bruce-heyman-us-ambassador-to-canada-2014/
http://www.internationaltaxreview.com/Article/3374204/Tax-Disputes/New-protocol-to-Canada-UK-tax-treaty-could-affect-future-tax-disputes.html
I see his wife Vicki Heyman, “MBA, Philanthropist and wife of US Ambassador to Canada, Bruce Heyman” on Thursday October 30, 2014 will be speaking at the Ottawa Women’s Canadian Club
(see the OWCC; “About Us: Our purpose is “to foster throughout Canada an interest in all matters of public concern in order to strengthen Canadian unity; to encourage the preservation and promotion of Canadian heritage and history; and to increase the knowledge and understanding of Canadians for the peoples of other nations”.”).
Ambassador Heyman chose to ignore FATCA and the waiting list of Canadians renouncing US citizenship, and the issues that US extraterritorial taxation of Canadians has raised but said:
“…..Part of my job as ambassador is to ask Canadians to look south when they are thinking about investing….”.
I’d rather it earn zero than invest it in the US or with any US connection.
Perhaps someone in Ottawa could go to this event and give Ms. Heyman a copy of ACA’s recent “Why FATCA is Bad for America – Update” and ask her and her husband to read it.
There is a good section in it about potential foreign divestment of US investments.
A little earful about the crazy hike in the renunciation fee (let alone the injustice of this whole outrageous situation) wouldn’t be a bad idea either…
@badger, ambassadors buy their posts so they can continue being tools. Just in a foreign setting. The current Canadian appointee is as worthless as the last one was and the next one will be because someone else is doing the real work.
@YogaGirl, he’s a bagman AND a tool.
And clearly told not to acknowledge in any way the stream of Canadians lining up to denounce/renounce the US – they would prefer that this gets no attention.
I agree that the only thing that can have any effect is litigation. We can not only write our hearts out, but people can agree with us, and it does nothing to sway legislation.
So what is going on with the Bopp story?
@Polly
Supposedly via something with twitter… Republicans raised funds to file the lawsuit… may happen this week… not sure since if they go any slower… we would have all been robbed blind.. sorry… bitterness flowing…
@US_FOREIGNER_PERSON
I thought with the help of Republican homelanders they should have it easy to gather the money. Why dont they have a website to keep people informed?
But yeah- I feel bitter too. Its like things keep getting worse.
And the violent world news doesnt help much either.