This article on our ADCS-ADSC Canadian FATCA IGA lawsuit came out on August 20, 2015.
I have now received permission from Bloomberg BNA to post it on Brock:
“Reproduced with permission from Daily Tax Report, 161 DTR I-1 (Aug. 20, 2015). Copyright 2015 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com.”
This article is interesting as it largely takes our lawsuit seriously. Unfortunately, none of “us” (Ginny and Gwen, our supporters harmed by the Canada-U.S. FATCA IGA) were interviewed.
THE BLOOMBERG ARTICLE:
“Canada Court Ruling Could Put Brakes on FATCA
2015-08-19 23:53:39.983 GMT
BNA SnapshotDevelopment: Federal Court of Canada due to rule on the validity of Canada’s intergovernmental agreement to facilitate FATCA financial reporting.
Takeaway: Practitioners predict a ruling for the plaintiffs would spur challenges around the world.
Next: Ruling expected by Sept. 30 [Hopefully before September 13; SK].
By Peter Menyasz
June 19 — Tax authorities and practitioners around the world are awaiting a Canadian court’s ruling on the legality of Canada’s legislation to comply with the Foreign Account Tax Compliance Act (Hillis v. Attorney Gen. of Canada, Federal Court of Canada, No. T-1734-14, oral arguments, 8/5/15).
The Federal Court of Canada is due to issue by Sept. 30 a ruling on the validity of the intergovernmental agreement on FATCA between Canada and the U.S., which mirrors more than 100 IGAs the U.S. has reached with other jurisdictions (221 DTR I-3, 11/17/14).
The ruling will address the preliminary issue, addressed in oral arguments Aug. 4-5, of whether information exchanges authorized by Canadian legislation to implement the IGA are consistent with the Canada-U.S. Income Tax Convention. The court will rule later on the constitutional validity of Canada’s legislation to implement the IGA, which is the lawsuit’s main thrust.
Storm Ahead?
If the court finds in favor of the plaintiffs, the Canadian government will undoubtedly file an appeal with the Federal Court of Appeal, but in the interim, the ruling will “throw the brakes” on FATCA’s application in Canada, Roy Berg, director of U.S. tax law with Moodys Gartner Tax Law LLP, told Bloomberg BNA in an Aug. 18 interview.
The court could also find the IGA partially inconsistent with the tax treaty, leaving the door open to appeals by both sides. Even if the court supports the government’s position, an appeal is likely, Berg said.
In addition, the court has indicated it will likely issue only a bare order, with reasons to follow later, leaving uncertainty over the details of its finding, and regardless of this ruling, the constitutional challenge will remain to be heard, he said.
The Canadian challenge is being watched carefully in the other jurisdictions with IGAs in place, and success by the Canadian plaintiffs could lead to a string of challenges, particularly as the treaty-based arguments would apply in a number of jurisdictions, he said.
Additionally, Berg said that if the Canadian lawsuit is successful, it could put at risk Canada’s ability to participate fully in the Organization for Economic Cooperation and Development’s common reporting standard. The Canadian government committed in its budget for fiscal 2015-2016 to implementing the OECD standard in July 2017, with draft legislation to be introduced during 2015 (77 DTR I-3, 4/22/15) .
“Potentially, the storm is coming,” Berg said.
Practitioners Awaiting Outcome
Alexander Demner, a partner in the Toronto office of Thorsteinssons LLP, agreed Aug. 19 that a ruling in favor of the plaintiffs would be “extremely significant,” effectively striking down the IGA and forcing Canadian financial institutions to choose between reporting directly to the IRS and paying the full 30 percent withholding tax on payments received from U.S. payors.
That would also mean that Canadian taxpayers’ other accounts, including registered retirement savings plan accounts and tax-free savings accounts, would lose the exemptions provided in the IGA and would be reportable to the IRS, Demner told Bloomberg BNA in an e-mail.
“The result could potentially be disastrous,” he said. “Canadian banks could find themselves in an untenable position, and one which could have serious economic repercussions.”
Roanne C. Bratz, a partner in the Montreal office of Stikeman Elliott LLP, agreed Aug. 19 that a ruling in the plaintiffs’ favor could be seen as support for similar legal challenges in other jurisdictions. “Of course, the basis for the Canadian judgment would be key in determining the extent of such jurisprudential support,” Bratz told Bloomberg BNA in an e-mail.
In any event, there will be significant uncertainty regardless of the outcome of this first ruling in the Canadian lawsuit, she said. “Whichever side is victorious at first instance, it is certain that appeals will be filed, so a realistic final determination is not imminent,” she said.
Bratz also noted the lawsuit in the U.S. filed by Republican presidential candidate Sen. Rand Paul (Ky.) that challenges the validity of FATCA-related IGAs signed by the U.S. with Canada, the Czech Republic, Israel and Switzerland (135 DTR K-4, 7/15/15).
Veronika Chang, head of the U.S. law practice group with Toronto law firm Morris Kepes Winters LLP, suggested Aug. 19 that while a ruling in the plaintiffs’ favor would invalidate Canada’s IGA, it would not affect the underlying requirements imposed by FATCA.
The ruling could inconvenience Canadian financial institutions and potentially spur similar court challenges in other jurisdictions, but that won’t help Canadian taxpayers, Chang told Bloomberg BNA in a telephone interview. “At the end of the day, I don’t see it changing much,” she said.
Details of Tax Treaty Implications
The first portion of the lawsuit addresses the arguments by plaintiffs Virginia Hillis and Gwendolyn Deegan, dual citizens who were born in the United States, that the requirements in the IGA for provision of account holder information to the IRS is more extensive than permitted by Articles XXVI-A, XXVII and XXV of the bilateral income tax treaty.
They argued that only a tiny subset of the information collected by the Canada Revenue Agency from Canadian financial institutions would be legally disclosable under the treaty and that the information would not provide any benefit to the IRS, demonstrating that coverage of Canada under FATCA was unnecessary.
It is impossible to guess on which side of the case the ruling will land, but there is a reasonable chance that the court could “bite” on the plaintiffs’ arguments, Berg said.
“Taken at face value, the plaintiff’s position would greatly limit the exchange of information contemplated by FATCA, which the defendants argued could not reasonably be what Canada and the U.S. intended when they entered into the IGA. The defendants proffered the counter-argument that under Canadian law interpreting a tax treaty is different than interpreting a statute,” Berg said.
The main portion of the lawsuit argues that the Canada-U.S. IGA, signed Feb. 5, 2014, violates basic freedoms guaranteed by Canada’s Charter of Rights and Freedoms and the unwritten constitutional principle against forfeiting sovereignty to a foreign state.
Federal lawyers countered that the IGA’s provisions are constitutional because they don’t cede sovereignty, and if they do violate Charter rights, the infringements are justified to relieve Canadian financial institutions and their clients from the “crippling” consequences of non-compliance with FATCA.
Canada’s Model 1 IGA relieves Canadian financial institutions from having to file reports directly to the IRS, instead reporting to the CRA, which would then provide the information to its U.S. counterpart. That eliminates concerns about compliance with Canadian privacy laws and protecting the exchanged information under Article XXVII of the bilateral tax treaty.
The IGA also clarifies that Canadian institutions aren’t required to report on certain classes of accounts, exempts smaller deposit-taking institutions from FATCA reporting requirements, exempts Canadian institutions from mandating closure of client accounts and provides simpler rules than those in FATCA.
To contact the reporter on this story: Peter Menyasz in Ottawa at correspondents@bna.com
To contact the editor on this story: Rita McWilliams at rmcwilliams@bna.com
The above story appeared in:
Daily Report for Executives
Daily Tax Report”
— HERE IS COMMENTARY ON THE ARTICLE BY USCitizenAbroad:
@Stephen Kish
Thanks for posting this article and I agree with your statement that:
This article is interesting as it largely takes our lawsuit seriously. Unfortunately, none of “us” (Ginny and Gwen, our supporters harmed by the Canada-U.S. FATCA IGA) were interviewed.
The article reveals a “FATCAnatic Tax Practitioner” perspective of the situation. The article and comments reported are a testament to how far the @ADCSSovereighty FATCA lawsuit has achieved. The FATCAnatics are VERY CLEARLY taking the lawsuit seriously.
This important piece of wisdom comes to mind:
First they ignore you, then they laugh at you, then they fight you, then you win.
Mahatma Gandhi
First they ignored us – no question about that …
Think back to the early days. Think back to the protests. Think back to the Bill C-31 Committee hearings.
Then, they laughed at us …
As I recall, in May 2014, certain Conservative MPs (in the final stages of the Bill C-31 hearings) were actually laughing at the harm inflicted on certain Canadian citizens.
In August of 2014 when the lawsuit was filed, various tax practitioners and MPs (and others) took the position that they lawsuit was ridiculous and laughable. I remember comments to the effect that … “What the plaintiffs don’t see” or “What the plaintiffs don’t understand is …” Some even suggested that the plaintiffs were admitting to CRIMINAL Acts. Imagine, Canadian citizens and residents are criminals because they are not filing forms to the United States Government. Right …
Now, the are clearly fighting us …
Oh yes, the Government is fighting tooth and nail. I believe it was also posted on Brock that various U.S. tax practitioners were actually in the courtroom in Vancouver (what were they doing there anyway?) Even the “tax practitioner” quotations in the above article seem to allow for the possibility that we will win. To quote from the article:
It is impossible to guess on which side of the case the ruling will land, but there is a reasonable chance that the court could “bite” on the plaintiffs’ arguments, …
And then we win! Yes, its true
The tax practitioners quoted NOW recognize that the true impact of this lawsuit extends way beyond Canada. Think of it! This lawsuit providing the road to 100 countries who have signed Model 1 IGAs being shown the road to freedom. Yes, this is serious indeed. To quote:
The Canadian challenge is being watched carefully in the other jurisdictions with IGAs in place, and success by the Canadian plaintiffs could lead to a string of challenges, particularly as the treaty-based arguments would apply in a number of jurisdictions, he said.
Actually, we may have already won. It’s just that we have to wait a bit longer for a formal notification of our victory. That notification will come. I don’t know the date or the context but it will come.
Thanks again for posting this:
“The world according to the FATCAnatic Tax Practitioner” article.
“Canada`s Model 1 IGA relieves Canadian financial institutions from having to file reports directly to the IRS, instead reporting to the CRA, which would then PROVIDE the information to its US counterpart. That ELIMINATES CONCERNS about compliance with Canadian PRIVACY LAWS …blah blah blah.”
What a lot of convoluted BS.
It is just so sickening- all of it. Bend the real laws into unrecognisability and then defend that in court.
Its BS.
While it is interesting to see these ‘tax professionals’ opine on the potential fallout, they obviously speak from a conflict of interest point of view. Also, as Stephen pointed out, the article does not hear from the plaintiff, only those who stand to gain substantially from FATCA.
It is worth considering that should the US trigger the ‘30% bomb’ on the biggest bilateral trading relationship on earth, they will surely set off another financial crisis. Indeed, anyone paying the slightest bit of attention right now will note the markets are extremely fragile and stressed at the moment. I don’t think they want to throw massive amounts of fuel on the already burning fire.
@polly
I am with you this was smoke and mirrors to get around privacy laws
They should have been honest and just repealed all privacy laws
Me thinks berg smells smoke and is going to position his firm as a consultant to both governments on a new approach
The Usa could gain so much good will by an Iga amendment excluding citizens and residents going after solely homelanders in the oecd model
All I hear is Berg trying to scare us….AGAIN! I still don’t believe for a second that the USA will be so incredibly STUPID to actually go ahead and attack any Canadian financial institution. It’s not like we in Canada have no hammer to fight back with.
Only a canadian
Canada and other nations could have passed a reciprocity cross border tax that would have only been triggerred when the Usa struck first
Do you remember the cold war concept of mad and how it kept the peace
@Pierre there is a part of berg I learner to like so I think he has hope remember he created that rather good I do not have a cln form
So the truth is there is more money to be made but from ad rising the two governments as he is clearly hedging his bets
Just thinking what if the Usa passed a new law under threat of thirty percent withholding that the border was extended ten milesfrom its present point
Would Harper thus hand over Windsor Ontario to save the banks
Correct me if I am wrong
If the Iva is struck down the Banks will face the thirty percent or face violating privacy laws and being sued
So does a Canadian. Bank follow Usa law or Canadian law
The Iva was an attempt at being too clever
Is berg referring to the “Common Reporting Standard” that the hypocrite USA has so far refused to be a part of. Berg, give us all a break, go back to your arrogant country with all it’s arrogant ideas that you are profiting from, and be a parasite on your own population!! Sheesh!
If the IGA is thrown out then all hell breaks loose and banks report directly to IRS and all the so called ‘protections’ for RRSPs, etc get thrown out and FATCA comes crashing into the country unshackled??
The article addresses NONE of the facts of the illegality of FATCA to begin with, necessitating the ‘IGAs’ with various countries. The IGA mechanism negotiated with Canada and other countries was done by Treasury , not ratified by Congress in ORDER to override existing laws that prohibit FATCA from being implemented. THAT destroys sovereignty , privacy and individual rights.
As James Jatras said FATCA is a train wreck and could not be implemented due to the privacy laws and constitutional issues without suckering countries to shackle themselves ‘voluntarily’ with threats of financial sanctions. Those financial sanctions were not only for banks but individuals also under certain circumstances. And not one word in the article about probable cause. Blanket ‘information exchange’ without probable cause is the forge of tyranny binding individuals to the chains of big government.
Oh, and ‘Canada may be jeapordizing their place at the OECD ‘reporting implementation table??
Governments truly forget themselves. They actually think they rule US and conduct themselves accordingly. If we do not bring them up short and conclusively the tyranny will be worldwide and complete. The UN will run us all and sovereignty will be dead worldwide.
The intellectual depravity illustrated by the comments in this article is truly mind boggling!
I pray constantly that the judge rules in our favour. If nothing else it will give much needed breathing room while the next defense of this egregious assault is mounted.
Nothing is mentioned about the fact that SENATOR Rand Paul is a co-plaintiff with standing.
Because he is a Senator and was denied the right as a Senator in Congress to scrutinize and vote on the ratification of the IGAs as they are not legally binding TREATIES.
Nor is there any mention of the 8 Constitutional challenges in the US suit in progress right now.
@Stephen Kish
Thanks for posting this article and I agree with your statement that:
The article reveals a “FATCAnatic Tax Practitioner” perspective of the situation. The article and comments reported are a testament to how far the @ADCSSovereighty FATCA lawsuit has achieved. The FATCAnatics are VERY CLEARLY taking the lawsuit seriously.
This important piece of wisdom comes to mind:
First they ignored us – no question about that …
Think back to the early days. Think back to the protests. Think back to the Bill C-31 Committee hearings.
Then, they laughed at us …
As I recall, in May 2014, certain Conservative MPs (in the final stages of the Bill C-31 hearings) were actually laughing at the harm inflicted on certain Canadian citizens.
In August of 2014 when the lawsuit was filed, various tax practitioners and MPs (and others) took the position that they lawsuit was ridiculous and laughable. I remember comments to the effect that … “What the plaintiffs don’t see” or “What the plaintiffs don’t understand is …” Some even suggested that the plaintiffs were admitting to CRIMINAL Acts. Imagine, Canadian citizens and residents are criminals because they are not filing forms to the United States Government. Right …
Now, the are clearly fighting us …
Oh yes, the Government is fighting tooth and nail. I believe it was also posted on Brock that various U.S. tax practitioners were actually in the courtroom in Vancouver (what were they doing there anyway?) Even the “tax practitioner” quotations in the above article seem to allow for the possibility that we will win. To quote from the article:
And then we win! Yes, its true
The tax practitioners quoted NOW recognize that the true impact of this lawsuit extends way beyond Canada. Think of it! This lawsuit providing the road to 100 countries who have signed Model 1 IGAs being shown the road to freedom. Yes, this is serious indeed. To quote:
Actually, we may have already won. It’s just that we have to wait a bit longer for a formal notification of our victory. That notification will come. I don’t know the date or the context but it will come.
Thanks again for posting this:
“The world according to the FATCAnatic Tax Practitioner” article.
A new chapter.
Our Canadian litigation is being debated seriously by others (US tax lawyers) than us. Hopefully, as the news of two Ontario women suing the Canadian government spreads around the world, our story won’t so readily be ignored by the media .
Can David again slay Goliath in standing up for what is just for David?
I’m just thinking of all the supporters of the ADCS-ADSC lawsuit who helped blow in that delightfully, rightfully, up-coming storm. If the banks are feeling some foreboding now then maybe they should also feel regret for urging their governments to sign IGAs when they could have got together as a worldwide group to urge their governments to threaten counter economic sanctions on the USA if it continued to pursue its FATCA madness. If there is any justice left in this world then our plaintiffs will prevail and the banks can stew in their own brew.
The further challenges as a result of an IBS victory in summary trial seems to resemble a sort of ‘Domino Theory’ the US like to tout around during the 1960s to fight communism.
Perhaps the US will experience will be on the receiving end of a new ‘Domino Theory’ from 2015 and beyond.
All IBS followers certainly want this to be the case.
:@embee the transnational Canadian banks had the ability to get fatca amended to go after homelanders but instead looked for an easy victom
The cons had the ability to stand up for Canadian citizens which would have cemented theie place history
The Harper government could have been THE leader in the world in standing up for the sovereignty of their country that their Leader is to protect. United in lockstep, none had the integrity or the backbone to stand up for ALL Canadians and their protection under the Charter of Rights and Freedoms, showing that document means nothing to Conservative Members of Canada’s Parliament.
As deemed *US Persons in Canada* now decide how to cast our votes on October 19th, we now ask the opposing Party Leaders what they will do to protect the rights of ALL Canadians.
Roy Berg likes to say that if ADCS wins the case that the Canadian banks will be left with having to comply with FATCA by directly reporting to the IRS. In other words the IGA1 will default into an IGA2. The thing that he forgets is that if the ruling goes in favor of ADCS then the prohibition against information transfer will apply to the Canadian banks and other financial institutions as well as to the CRA. The point of the suit is that this transfer of information is a violation of Canadian’s rights. The focus is not just on the entity who is violating the personal rights of Canadians but on the Charter Rights that are being set aside for the sake of a foreign government.
There’s one FATCAnatic I know of who will undoubtably be spewing even more “jingoistic hyperbolic rhetoric” should the plaintiffs win.
Then we win – and laugh.
We should be careful to not celebrate prematurely. The verdict has not be rendered and until then we should be humbly quiet as to the outcome. Our case is strong but it is not assured.
@ recalcitrantexpat
Agreed. The judge will be deciding on interpretation of Canadian law and hopefully Arvay and Gruber presented the strongest case. I wish this was to be decided by empathy but that’s not how the justice system works, especially when the government is the defendant.
The U.S. can’t afford to unleash the 30% bomb on Canadian financial institutions because so muh of the U.S. economy is linked to Canada and many U.S. interests would be hurt hard. If U.S. investors in Canada find their Canadian source dividends imperiled by the effects that the 30% withholding will have in ability of Canada’s financial institutions to pay dividends, reinvest in the company etc. then Congress and the White House will definitely hear from homeland voters and it is their votes that matter.
With upcoming elections for President and Congress it would seem that the U.S. political system has a vested interest in making sure that things WON’T change when there is so little to be gained.
Most bombers don’t want to be around when their bomb explodes and there is no U.S. politician who wants to around the F.A.T.C.A. bomb at election time.
@all
Spoke to the New Zealand treasury and asked about FATCA and why they would allow New Zealand money to leave our shore through CBT and is FATCA extraterritorial? They said the US can tax it citizens the way it want and they support US. I also asked if that was fair and they did not answer.
I mentioned the Canada lawsuit and they said the knew about it and feel that the Canadian Government will win.
They also mentioned the OECD model. Does anyone know about this?
Overall a very disappointing conversation.
Any thoughts everyone?
@Recalcitrant
You advise:
You are correct.
In my above comment I said:
I believe that “at the end of the day we win”. We may or may not win the early rounds. We do NOT know what Justice Martineau will rule. But, an appeal is guaranteed. This will go on for a long long time.
At the end, “right” will prevail over “wrong”.
“Justice” will prevail over “injustice”.
“Good” will prevail over “evil”.
“Humanity will prevail over the Democrats.”
The FATCAnatics will be defeated.
@bg
You write:
In early 2014 when New Zealand was considering signing the FATCA IGA, they referred to “U.S. citizens in New Zealand” as (something) like “U.S. taxpayers habitually resident in New Zealand”.
This statement is of interest for at least two reasons:
1. These “U.S. taxpayers habitually resident in New Zealand” include New Zealand citizens. This means that the Government of New Zealand is happy to “turn its citizens over to the United States”. Clearly they regard their citizens as property.
2. The statement reinforces the claim that U.S. citizens are nothing but “property” that the U.S. is free to abuse any way that it wants.
Notice that the focus of their response is NOT on taxation. The focus of their response is on what it means to be a citizen. It focuses on the rights of the citizen vis-a-vis the state.
My prediction is that FATCA is going to force a complete revaluation of what “citizenship” is. FATCA and CBT are making it clear that “U.S. citizens” are actually the property of the United States. No, that’s not “politically correct – don’t tell “Democrats Abroad” but it’s true.
Consider the following post by Keith Redmond at the American Expatriates Facebook site.
https://www.facebook.com/groups/AmericanExpatriates/permalink/504077746424969/
Those who are Facebook should check this out. For those who are not, here is what the post says:
This is clear proof that the FATCA rules and the FATCA IGA have turned those with a U.S. birthplace, who do NOT live in the U.S., into slaves of the United States. (Don’t tell “Democrats Abroad” – they will “condemn” me for speaking the truth.)
This incident is one of many that proves how morally repugnant the laws of the United States have become. The country believes that it has the right to control any person and any country.
At the end of the day, this war is going to be settled (and won) on the battlefield of the definition of “citizenship” and NOT on the battlefield of the practice of “taxation”.
The article says: “Alexander Demner, a partner in the Toronto office of Thorsteinssons LLP, agreed Aug. 19 that a ruling in favor of the plaintiffs would be “extremely significant,” effectively striking down the IGA and forcing Canadian financial institutions to choose between reporting directly to the IRS and paying the full 30 percent withholding tax on payments received from U.S. payors.”
The question I have is, Why would Canadian F.I.s be forced to choose between following a foreign law (that is being challenged by Paul Rand and other plaintiffs in the U.S. courts) and following Canadian law? The decision is going to made by the Canadian courts. not the F.I.s, right? That decision will determine what the F.I.s must comply with, right? So I don’t follow Alexander Demner’s thinking.
The thrust of the article was obviously to tout people like Roy Berg to warn its readers that whatever weakens the banks weakens countries, and therefore this lawsuit is a threat. That premise is ridiculous. The problem is the opposite, the more power and freedoms and bail-out dollars that the big global banks get, the more massively they inflate themselves, which results in greater harm when their bubbles burst!