2,221 thoughts on “Canadian FATCA IGA lawsuit: November 1, 2014 legal bill will be paid on time! / Poursuite canadienne contre la FATCA et le gouvernement canadien : nos frais légaux du 1er novembre 2014 seront payés à temps !”

1. @George, @Stephen Kish, @John Smith
   Agree with Stephen: litigation costs are usually based on actual hourly billings, and delay of a statement of defense should not cause any additional hours for plaintiffs’ counsel. Litigation is a marathon.

   That being said, because the FATCA IGA is causing immediate and serious harm to many Canadians due to its discriminatory effect and violations of Charter, time is of the essence, and unreasonable delays should not be tolerated.

   The idea of opening several fronts for judicial challenge is also. Judgements build upon precedent. The major human rights victories of the 20th century – civil rights,,, the end of segregation by color… women’s equality rights… gay rights and gay marriage – are the result of numerous actions and judgements building upon each other.

   Canada’s Charter is “living tree” subject to ongoing expansion by precedent. The living tree doctrine has been part of Canadian constitutional law since the seminal constitutional case of Edwards v. Canada (Attorney General) also widely known as the “Persons Case” wherein Viscount Sankey stated in the 1929 decision: “The British North America Act planted in Canada a living tree capable of growth and expansion within its natural limits.”

   The current Charter Challenge is perfect example of this, whereby a foreign state’s definition of so-called “US person” runs head first into Section 15 of the Charter, and the Charter will expand to protect Canadians from extra-jurisdictional imposition of discriminatory effect.

   Personally, I continue to support the ADCS solely for now because it’s the best focus for my finite means, and because I am solely a Canadian citizen.

2. @Dash179 and others: Set your minds at ease about a few things.

   1. Yes, lawyers charge by the hour. Very often that results in LOWER costs for some clients, particularly when lawyers who are experienced and know their craft very well are able to draw on their experience and get a good result at a much lower cost than an average lawyer with less experience. Mr Arvay is at the top end of the experience scale and hourly rates don’t go up nearly as fast as “value for experience” does, by and large. There are but a handful of people with his skill set. Stephen was put on to him by the country’s foremost constitutional law professor as well (I believe he is in private practice as a consultant now, but Peter Hogg’s name is practically synonymous with constitutional law for an entire generation of lawyers).
   2. Good lawyers are constrained not by how many clients they have but how much time they have. What I mean by this is that good lawyers wouldn’t dream of prolonging, delaying or extending a proceeding to jack up the total bill. For them, their work is more like the labours of Sisyphus: there will always be another hill to roll the rock up. The question is how much time and energy they can divert from work to live a normal life. Again, I don’t think anyone needs to keep awake at night worrying that counsel in this case will be careless with the donated funds.
   3. Delay. This is going to take a while. My guess is that, optimistically, there will not be a hearing for at least six months. For one thing, as you all know, ACDS continues to look for additional witnesses as Mr. Arvay seeks to ensure the full picture is before the judge. He has to worry about the long game here: even if winning at the first level proved relatively easy (it won’t be), he needs to factor in the strong likelihood of further appeals. Once the first level hearing is done and decided, it will be almost impossible to get new evidence before the Federal Court of Appeal or Supreme Court of Canada where this has every chance of being headed. It is likely reasonable to expect a first level decision before FATCA reports for 2014 start getting compiled next year and sent to CRA, but it could be 2 years or more before it is as high as the Supreme Court. Indeed, if it goes that far, it will almost certainly be longer. That doesn’t mean that the donor base will necessarily be bled white: the courts will have options in terms of ordering interim costs along the way. For a public interest case such as this, they may well exercise discretion to do so at some point (eg. after a successful first level).
   4. Extension of Time – While Stephen is right that extending time for delivery of a defence was a courtesy in this case, it was a courtesy that was virtually mandatory. Refusing an extension and requiring the AG to bring a motion for an order extending time would have cost ACDS money and there is virtually no chance the AG would have been refused time if asked. In short, it was a mandatory courtesy. You don’t want Mr. Arvay conducting scorched earth style litigation – it is counterproductive and far, far more expensive.

   By all means everyone can and should stay engaged, interested and ask questions. Just calibrate your expectations to understand this is going to take a while. Progress will come in great leaps followed by long slow periods. Cultivate patience and rely on Stephen to keep everyone updated.

3. @Anne Frank – Thank you for another wonderfully rational analysis. Clearly based on extensive knowledge.

4. @Anne Frank,

   I agree with nervousinvestor and thank you for your commentary on this. I hope everyone with any concern will read and understand the points on process you have explained to us. How fortunate we are to have your input!

5. George,

   Thanks for your comment and showing how, upon your first read, you too wondered about the wisdom of this second litigation effot.

   Thanks for thoroughly ‘looking at it’ and seeing that it complements the main Canadian litigation.

   Thanks for your continued support of Alliance for the Defence of Canadian Sovereignty and seeing and explaining here your view that both can and should benefit litigation from other countries — and the EU.

6. There should be no compromises with the US. Anything less than bringing CBT to an end is the equivalent of removing only part of the cancer. The remaining malignant cells will continue to reproduce and most likely morph or mutate into something worse.

   There should be no compromises!

7. I agree, Samuel Adams. That’s why I have no use for Democrats Abroad or the Democratic Party for that matter, since DA says CBT’s here to stay.

8. If nothing else, I’m about to get an education in the litigation process. Thank you Anne Frank for your easy to understand explanations. I hope there isn’t a pop quiz at the end though because I flunked U.S. Tax Code 101 … but then does anyone ever get a passing grade in that?

9. @Shadow Raider (& @Stephen Kish: I think you have very concisely stated the weakness in CBT from a constitutional perspective. I have looked at both arguments in the past, but your review of the tax treatment of insular territories (essentially exempt) had not occurred to me and is a very good point. Why is a US citizen in Puerto Rico subject only to local (Puerto Rican) income taxes but a US citizen resident in Canada fully subject to all income taxes? Further, I might add that even IF US citizens were liable for US taxes in PR (and they are not – only income earned in the US), if that were a function of local law (even if enacted by the US in its capacity as territorial administrator or whatever title they give to their colonial status there), it wouldn’t detract from the principle. Cook v Tait did not look at this issue at all (it really didn’t look at anything!). As for the 14th Amendment (non-discrimination), I think somebody could go to town on the whole range of laws which fail to account for the (at LEAST) concurrent and obviously legitimate application of the laws of the residence of the individual. The net result of the package is that US citizens abroad are deprived of substantially all of the “benefit” of almost every tax incentive in the Tax Code. Their career choices are limited (no small business, no partnership with non-citizens, no financial or fiduciary responsibility for accounts without negative consequences on partners/employers/clients that similarly situated homelanders don’t face). Their reporting responsibilities are vastly unequal (no homelander reports local financial accounts to anyone) and come accompanied with draconian fines and penalties. Their saving, investment and family planning options are directly and negatively impacted relative to homelanders, etc. The argument in my book would be: IF you are to assume the right to impose CBT, it must be done in such a way as to apply equally to all citizens. If that means taking more time to customize it to the circumstances of non-resident Americans, then take the time or don’t enact the tax. In a sense it would be like the busing cases: the net impact is one of gross inequality since same person living in NY or living in London, Berlin or Ottawa ends up with a vastly different impact of taxation on their lives.

   Last intriguing thought I had reading your essay was this: even if the 16th Amendment saved INCOME tax from having to be apportioned, it says nothing of ESTATE taxes. Where on earth does the US think it gets constitutional authority to purport to levy an estate tax on property situate outside of the United States in respect of an individual resident outside the United States at the time of his or her death? That is neither apportioned nor in one of the States. The 16th amendment saved only income tax. Estate tax must either be direct – in which case apportioned among the States; or indirect in which case “uniform throughout the United States”. An Estate Tax levied on someone resident in Canada is hardly “throughout the United States”.

   It is too bad all the rich people are paying the exit tax and leaving without a fight. What’s needed here is some deep pocket to take them to court in the US and get some of these issues aired. Few people have the financial means to take on the whole US Government on their home turf. How someone from abroad is supposed to do it is beyond me. Then of course, that is exactly why it is such an easy tax to impose: nobody can hear the squawking and they are safe from any court challenge given the practical impossibility of doing so.

10. With regard to the new Butera case, this new initiative is fantastic – well done to everyone involved. Just a couple of points though:

    (1) This applies to “Accidental Americans” in all countries not just Canada.

    (2) The number of “Accidental Americans” who are considered US citizens by parentage only is perhaps at least as big as those born in the US. These people have even less reason to be classified as US citizens. This group was not highlighted in the press release. I am wondering if this was deliberate or not?

    Please don’t take this as any form of criticism. I am in awe of the work being done on behalf of “accidentals” everywhere.

11. I am sure this must have been asked before: If the ADCS court challenge is ultimately successful will the Canadian Government by liable for costs? In other words, is there any hope that contributors might eventually get some of their money back?

12. @osgood

    That question has occurred to me before but this is the first time I recall it being asked.

    Since some donations are in the form of anonymous cash, it is hard to know how refunds could be made fairly. In the happy (I don’t know how likely) event that the Canadian government had to reimburse some of the costs, I would think the fairer solution would be one of the following:

    After, and only AFTER, all costs for the current action have been paid, the money could be directed by ADCS to any other lawsuit that might still be pending related to FATCA.

    If there are no appropriate other lawsuits still pending at that time, then I’d prefer the money go to a Canadian charity of ADCS’s choosing.

    But such a happy event, even if it is technically possible, is likely a long ways away at this point.

13. @Anne Frank

    Thank you for your comments clarifying things.

    “Again, I don’t think anyone needs to keep awake at night worrying that counsel in this case will be careless with the donated funds.”

    My concern wasn’t about carelessness by Arvay and team but rather intentional delays by our opponents intended to drive up the costs on our side–hence a desire not to extend such “courtesies” too readily. I do appreciate the comment you made that fighting this delay would have increased, rather than decreased, costs–and probably not have been successful.

14. @Dash1729

    Court case delay do not cost more… objective of the delay is to pull it out as long as possible & u give up or die… whatever comes first… sounds morbid but that is the reality… Law firms do not milk a suit unless the outcome has to do with money… then yes… shark circles… but in cases like this… they are a well run machine… they also do not spend all their time on this because they do have other cases they are working on…. they give 100% to as many cases as they can.. I prefer to have an attorney who is on the down low…. sneak up on the enemy then knife them through the heart… that is how I like to see it… show boating is fine… but nose to the grind stone gets better results…

15. I currently run 8 websites displaying public information from State voter lists. The complaints were heavy until I gave voters the option of having their names removed on request. Many States have restrictions on how this information (name, home address, political party if any, and voter ID number minimum and often including birth date, depending on the State) can be used. However, if you sit in an internet cafe in Canada one would wonder how the so-called authorities in Pennsylvania can prosecute you for posting voter information on internet websites. Now, my own websites bring in ad revenue. However, a Canadian in Canada could publish U.S. voter information and refuse to remove any names until FATCA and CBT are eliminated. The vast majority of USA residents (and I don’t call them “Americans” because North Americans, Central Americans and South Americans are all Americans) are totally ignorant about the issue of CBT but the voters who object the strongest will (I know from experience) raise holy Hell, and get in touch with lawmakers

    http://utahlegislature.granicus.com/MediaPlayer.php?clip_id=16824&meta_id=496228

    and the news media.

    http://fox13now.com/2014/01/09/utahns-upset-after-website-posts-voters-personal-information/

    Believe me, they will be a LOT more furious if you refuse to remove names on request. Ask them if they would like to pay a $2,350 USD fee to get their names removed. Mid-term elections are coming up.

16. @US_Foreign_Person

    “objective of the delay is to pull it out as long as possible & u give up or die…”

    Which is just as concerning a reason–if not more so–for a delay than a delay based on a desire to milk someone for $$$.

17. @Tom Alciere

    A website where your name is posted publicly until you pay a $2,350 fee? Sounds like a revenge porn site.

18. @Anne Frank, I have answers for you.

    1. The reason why the Supreme Court only mentioned the income tax its decision in 1895 is simply because the estate tax didn’t exist at that time. If it existed, I highly suspect that the court would have said that the estate tax was also a direct tax. In any case, today the courts consider all current federal taxes as indirect.

    2. The estate tax was created in 1916. It was based on residence until 1933 (residents taxed on worldwide property, nonresidents taxed only on US property, citizenship was irrelevant). In 1934, all citizens started to be taxed the same way, but foreign property was only taxed if it was “movable” (bank accounts and stocks), but not foreign real estate. This applied to everyone, including residents. It was only in 1962 that foreign real estate of nonresident citizens was taxed for the first time in history. It has remained this way since then, except for 2010 when the whole estate tax was suspended for a year. By the way, the Supreme Court ruled in 1925 that states cannot impose an estate tax on real estate located outside the state, but it has said nothing about the federal government.

    3. It surprises me that people like Eduardo Saverin and Tina Turner preferred to renounce US citizenship and pay the exit tax than to challenge CBT in court.

19. @Shadow Raider

    “It was only in 1962 that foreign real estate of nonresident citizens was taxed for the first time in history.”

    Question for you–or anyone else–has Canada typically enforced this in the past?

    I.e.: imagine this scenario: a US citizen (or someone claimed by the USG as a citizen) dies in Canada and as a long term Canadian resident. Neither the deceased nor any of their family nor any of their heirs has any US connection beyond this “clinging US nationality”. All assets are in Canada, and all assets would remain in Canada were they transferred according to the will. Let’s also say the deceased has not filed US tax returns for years and did not–to anyone’s knowledge–even consider themselves a US citizen. No one involved–the family, the heirs, the executor, the probate court–thinks of this person as anything other than a Canadian citizen and no one is prepared to administer the estate using any law other than Canadian law.

    Suddenly the IRS turns and files a probate claim, asserted the deceased was a US citizen and demanding 40% of the estate.

    How has this kind of situation been handled in the past? Do the Canadian courts hand over the assets? Or do they tell the IRS to take a hike? There must surely be some legal precedent if CBT applied to all estate assets since 1962 and to movable assets since 1934. I would think the precedent might be somewhat relevant to the ADCS legal action.

20. @Shadow Raider

    “3. It surprises me that people like Eduardo Saverin and Tina Turner preferred to renounce US citizenship and pay the exit tax than to challenge CBT in court.”

    Just to be clear though–the exit tax and CBT are different things. Canada has an exit tax but Canada doesn’t have CBT–it has RBT. I don’t know the exact finances of either Saverin or Turner other than to know they are rich. But if someone makes most of their money in the USA and then leaves, the difference between a CBT exit tax versus an RBT exit tax might not be that big.

    I think it is more the middle class who are hit disproportionately hard by CBT.

    Saverin and Turner both left the USA pre-FATCA and probably never had any intention of returning even without FATCA–and just wanted to avoid the complexities of US citizenship abroad which affords them no further benefit.

21. I expect any constitutional challenge against CBT or the exit tax would need to identify a plaintiff against whom these provisions were so egregiously unfair that a judge would be offended by such self-evident injustice.

    In the case of Saverin, I believe that his exit tax was legitimate. That’s an understatement; he’s the poster boy for justification of an exit tax.

    By contrast, imagine if Barak Obama’s mother had been Kenyan, and he had returned to Kenya an accidental citizen. Half a century later, Kenyan Barak Obama has done well for himself as founding partner of a medium size law firm in Nairobi. He receives a letter from the IRS, consequent to FATCA reporting. The compliance requirements (foreign partnership, FBAR, CFCs, deemed transparent entities, PFICs …) would destroy the entire firm.

    Regarding the exit tax specifically, Congress has carved out an exemption, ostensibly for accidentals or those similarly situated. Section 877A(g)(1)(B)(i)(I) requires that those seeking such exemption “became at birth a citizen of the United States and a citizen of another country”. This is a curious provision of the tax code, as it outsources interpretation to the nationality legislation of other countries; with potentially interesting consequences.

    Imagine two South African women, one white and one black, fortunate enough to have studied in the USA during the 1970s. They give birth while in the USA, and return home with their accidental citizens. FATCA identifies the accidentals in 2015, and they both seek to renounce their citizenship. Under apartheid, the white mother would have conferred South African citizenship to her child, while no blacks were ever considered citizens of South Africa. The black accidental might challenge his inability to qualify for the exemption, preferably using the white accidental as a witness, by showing how the US Tax Code has imported discriminatory apartheid legislation.

    With approx 200 nations on Earth, and people still alive who were born under 19th century nationality statutes, there must be countless potential ‘poster children’ for attacking this provision. Talk about arbitrary and capricious. Indeed it provides tax planning opportunities to homelanders whose ancestors arrived from nations that recognize citizenship by descent, while arbitrarily depriving those for whom the exemption was intended.

    These are merely two examples of what I’d like to call ‘slam dunk’ plaintiffs. Once a slam dunk plaintiff brings such injustice into consideration under the US justice system, I expect there will be major donations, pro bono representation, support from civil liberties and human rights organisations, major media coverage etc. This will be the proverbial thin edge of the wedge that will start to expose the inherent injustices of the way in which the US practices CBT, and could prompt Congress to redraft elements of the tax code in ways that might benefit many of us.

    How do we identify a slam dunk plaintiff? Well, perhaps FATCA is our friend here. The IRS will likely send out thousands of letters to hitherto unidentified US persons around the world, starting around April next year. The IRS will have insufficient data from FATCA reporting to identify the targets as potentially slam dunk plaintiffs (and thereby avoid them). Hopefully their stories will start to appear on the media websites of the countries in which they live, whereafter it won’t be long before IBS discovers them.

    There are many comments here from, say, former LPRs claiming they don’t want to fund a case that might only benefit accidentals. I could say the same for the present suit which ‘would only benefit’ Canadians. This is short sighted. You don’t have to be a black South African born in the USA during apartheid to benefit from the changes that such a case might bring. In promoting or supporting a case, it’s the integrity of the legal argument that matters, not the similarity of the plaintiff’s circumstances to your own. CBT/FATCA/FBAR/PFIC is one homogenous entity which needs to be attacked where it is weakest.

22. These lawsuits are of Global importance. I say this as one who is Not A US Citizen, not a green card holder, not born on us soil, does not live in the US, has no US source income, does not have a US PERSON parent …. yet FATCA affects and imposes systemic costs on me and others worldwide. Most importantly FATCA also severely impairs my freedom.

23. @Domino,
    >In the case of Saverin, I believe that his exit tax was legitimate. That’s an understatement;
    >he’s the poster boy for justification of an exit tax.

    Why? I expect it’s related the fact that he has a lot of money and that makes him evil. Why should he be subject to a tax on the gains of his assets without an offset for future taxes he might owe? Why does the US think it has the right to pretend he sold all his assets? Why does the US think it has the right to tax his pensions earned in other countries and protected by the tax treaty now? Why does the US think it’s OK to tax the gains made on assets while he lived in another country even if the gains were not realized?
    The US at the time had raised the long term capital gains rate from 15% to 23.8%. It had jacked up his maximal income tax rate from 35% to 39.6% (or even 43.4% for non-qualified investment income).
    Now I hope he managed to hide most of his wealth in trusts and gifts etc to escape as much of it as possible. The only thing that’s stops the government taking all our stuff is the pressure from those that leave.
    The number one reason to love Savarin is that Chuck Schumer doesn’t like him.
    It’s was a proposal from American Citizens Abroad to have RBT gated by a special exit tax. Of course that special exit tax only hits rich people. Like I have said many times before. People here would be quite happy to just have various limits raised so these problems only apply to rich people.
    Of course you don’t like being labeled as rich people because you live abroad. Nobody cares about them.

24. Great points, Neill. Some choose to vilify Savarin’s because it fits the narrative that he renounced for money, while at the same time excuse Tina Turner for doing it for love, when without any evidence to support either belief, the very opposite might be very well true. In reality, love may have had nothing to do with Turner’s decision!

    Some Americans have discovered the cure for cognitive dissonance is to believe two or more things at the same time. War is peace…

25. I agree that Savarin is probably not the best guy for a “no exit tax” case. Most of his money was likely previously untaxed capital gains. To the extent his money was earned in the US and not yet taxed there, probably fair that they get one bit out of him before he goes. The problem with exit tax is applying it to people who shouldn’t be in the tax net to begin with.

    Savarin lived in the US and earned money and presumably had tax-deferred capital gains. Taxing a US resident at the point of leaving the US tax net does not shock the conscience providing it is done in a non-discriminatory fashion. My objection to exit taxes are when they are applied to non-residents. Tax Gwen on her capital gains at age 5 when she left- I’m pretty sure she’d be OK with it.

    Let’s face it: CBT is the problem. It is unfair and oppressive by nature unless constructed carefully and with a thought-out policy framework recognizing the primary right of the jurisdiction of residence to tax first and recognizing the need to avoid making the US citizen living abroad worse off on a net basis (after that first slice of tax) than the homeland US citizen. Since the US has higher taxes than the places of residence of 90% or more of its expats and has spent precisely no time trying to fine tune its tax system to account for the impact on non-resident citizens in dozens of different tax systems, it is pretty obvious that they have not designed a CBT system that passes the non-discrimination criterion.