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.
@bubblebustin and @FuriousAC,
Always good to refresh our memory of some of the ammunition and facts we’ve all collectively amassed here. Re-reading the Cockfield and Christians work is good prep for thinking about what best to raise in our local ridings as debates and public meet the candidate events get rolling. I’m debating how best to phrase a question to my local candidates (and there is no reason why we can’t ask them at neighbouring riding events too!) in order to alert our fellow voters and taxpayers to FATCA and the Harper collusion to assist the US with imposing its imperial extraterritorial tax system on Canadians – despite Harper’s past statement that:
” You know, there’s two schools in economics on this. One is that there are some good taxes and the other is that no taxes are good taxes. I’m in the latter category. I don’t believe that any taxes are good taxes.”
– Stephen Harper, July 10
“….from an interview the Prime Minister gave The Globe and Mail after the G8 summit in Italy”
http://www.theglobeandmail.com/globe-debate/a-very-scary-pm-i-dont-believe-that-any-taxes-are-good-taxes/article787808/
and it’s interesting that Harper also said:
“It is imperative to take the initiative, to build firewalls around Alberta, to limit the extent to which an aggressive and hostile federal government can encroach upon legitimate provincial jurisdiction.”
National Post, January 24, 2001, “Open Letter to Ralph Klein”
https://en.wikiquote.org/wiki/Stephen_Harper
But yet he imposed FATCA on our provincially regulated credit unions.
And Harper issues statements against provincial attempts to help us in our own provincial homes save for retirement. Funny that, if I an Ontario resident and voter chose to support an Ontario Pension Plan, what business is it of Harper and the federal government?
“At an event in Markham Tuesday, Mr. Harper said he was “delighted” Ottawa’s decision is “making it more difficult for the Ontario government to proceed.”” https://en.wikiquote.org/wiki/Stephen_Harper
What a hypocrite of the first order – he uses opposition to taxation of any kind as an argument why he won’t help people in their own province make their own decisions about how they want to save for old age, but yet he is pulling out all the stops – using our OWN TAXES to fund the Justice Dept. defence of foreign extraterritorially imposed US FATCA in aid of the US extraterritorial taxation of Canadian taxpayers. In addition, our Canadian taxes will have to be raised in order to pay for the current and all future years of contemplated CRA implementation of FATCA forever and ever and also, the OECD CRS. See https://openparliament.ca/committees/finance/41-2/63/mike-allen-1/
@All and George
OECD Model Article 11 – Recovery of tax claims states
“…take the necessary steps to recover tax claims of the first-mentioned state as if they were its own claims”
http://www.keepeek.com/Digital-Asset-Management/oecd/taxation/the-multilateral-convention-on-mutual-administrative-assistance-in-tax-matters_9789264115606-en#page14
What odes it mean for us if/when this comes into force. Does change the game and make it easier for the US?
Hopefully the we win the lawsuit and it puts a stop to all this.
Former Finance Minister The Rt. Honourable J. Flaherty clearly stated that Canada would not collect tax claims that were levied by the U.S. if that person were a Canadian citizen at the time of the assessed claim or portion thereof. This has been a long standing policy of Canada and it is exactly the same policy that the U.S. holds to itself.
If anyone knows that I am wrong then please correct me. I am sure that this is meant for assisting in any claims that a foreign government is levying on one if its residents.
Here’s hoping for success for the lawsuit and a defeat for the global dictatorship in Washington …
Sorry for this digression, and really sorry to see an apparent point of agreement between me and a virtually criminal operator. There is something to be said for keeping pensions national.
“Funny that, if I an Ontario resident and voter chose to support an Ontario Pension Plan, what business is it of Harper and the federal government?”
When I asked the Japan Pension Organization about totalization between Japan and Canada, the Japanese official had to make some guesswork, but on one matter he did not have to guess. He asked if I had been in CPP or QPP. Japan and Canada totalize Japanese pensions and CPP, but not Japanese pensions and QPP.
I do not know the manner in which Quebec thinks it’s serving Quebecois by forcing those who have spent more than minimal time in Japan to remain in Japan for the full 25 years before going home. If a Quebecois stays in Japan for more than 3 years but less than 25 years, they’ve paid a lot of social security premiums to Japan that they’ll never get back.
“https://www.jct.gov/publications.html?func=startdown&id=4550
Go to DOCUMENT (not pdf) Page 3.
Essentially, the USA lodged a reservation”
OK, I see that the US says they will ignore that part of that treaty, but it doesn’t affect ways in which the US and other countries can arbitrarily decide which parts of other treaties they’ll obey or disobey.
I see that as of June 2015 the US is still not on this list:
SIGNATORIES OF THE MULTILATERAL COMPETENT AUTHORITY AGREEMENT AND
INTENDED FIRST INFORMATION EXCHANGE DATE
Status as of 4 June 2015
http://www.oecd.org/tax/exchange-of-tax-information/automaticexchange.htm
Where is all that US commitment to cooperate in global efforts against tax evasion and all that automatic ‘reciprocal’ data ‘exchange’ the US was to provide to the rest of the world?
I just read that;”..The EU already had implemented a intra-FATCA for interest payments a decade earlier, known as the EU Savings Tax Directive. The EU, back then, asked the US to sign on board, and the US rejected doing so..” http://lawprofessors.typepad.com/intfinlaw/2015/08/treasury-acknowledges-more-favorable-fatca-iga-terms-for-bvi.html
The US has no intention of binding itself or its financial institutions to anything FATCA like or otherwise.
Not going to happen.
@badger
The US will never sign onto the OECD Exchange agreement. It wouldn’t make any sense for them to do that. After all, most of the non-resident aliens who invest in the US owe no tax to the US.If they suddenly starting reporting these people to their home jurisdictions, money would stop coming in. And we all know what the US loves the most, above all other things, no?
The US will get what it needs via FATCA. It doesn’t have anything to gain from OECD.
FuriousAC: I love your reply to Polly on Aug. 22, 4:54 p.m. “Amen” to all you have said!
The US will never sign an OECD information exchange agreement. They get everything they need from FATCA.
It’s like the schoolyard bully stealing everyone’s lunches, then opting out of the school lunch program.
@Muzzlednomore
But those are very scary prospects. And if opposition does not win in the courts – what will the future bring? War? It doesn’t seem to me that such syndicated greed has ever been stopped without bloodshed, unless perhaps in the future, the international Human Rights organisations actually have any power to stop global wealth confiscations?
@Polly:
Our greatest asset as individuals is knowledge. And using that knowledge to protect ourselves and our families. Couple that with experience. Then knowledge becomes a weapon. A two edged sword.
There is no doubt that formidable forces are aligned against the individual and have been aligned against us for many years. At least 100 years if not longer in this present conflict.
And if we look at long history, man who has and wants more has put upon those least able to resist to accumulate more.
Knowledge was paramount and fundamental in the forming of the new nation in 1776. The founding fathers had profound knowledge and used that along with their experiences to lay out a foundation that protected the individual against government. They warned then against a central bank.
However, since 1913 things were changed in favour of larger and more nefarious interests.
It could reasonably be said that all wars since have been banker’s wars.
This FATCA and IGA implementation is another part of the ongoing banker’s war.
WWl and WWll were fought with great loss of life while banks profited from both sides, from ALL sides and that continues to this day.
And then there is Providence.
When we see the forces aligned against us, our hearts weaken and our resolve threatens to fail us and then something happens: Against all odds, a small band of brave warriors prevail and we live to fight another day.
David and Goliath
The Battle of Britain
Henry The V and The Battle of Agincourt
Washington crossing the Delaware
Thwarting the Benedict Arnold plot
Rescue of the Danish Jews
ADCS lawsuit ( That’s US!)
Just a few examples of fighting against all odds.
Some won small victories , some large, some the outcome unknown to those who participated because they did not live to see the larger positive ramification of their actions.
But fight they did!
And, Polly: Every single one of them were afraid. Very afraid but they fought anyway.
So are we. And so do we!
‘Put on the armour of God , gird thy loins with righteous indignation and go forth!’
@FuriousAC,
love your response to Polly;
ex. “Our greatest asset as individuals is knowledge. And using that knowledge to protect ourselves and our families. Couple that with experience. Then knowledge becomes a weapon. A two edged sword.”
Amen. Already, the value of our crowd sourcing of information here has paid off repeatedly. No one of us could have done it alone. I didn’t even understand or know about impending FATCA until after finding IBS when googling for info about evil US extraterritorial CBT and FBAR and OVDI.
Just Me and others here helped me to see how FATCA was going to amplify our misery and create even more evil by making Canadians pay to implement a foreign created law that would cede Canadian and other countries’ sovereignty, betray all their citizens and residents to a foreign power (the US) and suck out our legal local assets, and make all the taxpayers of the world pay for the ‘pleasure’ via US extortion and unwarranted economic sanction.
And I love the advice to:
” ‘Put on the armour of God , gird thy loins with righteous indignation and go forth!’ ”
Surgite!
“Our greatest asset as individuals is knowledge.”
Oops, now they’re going to tax knowledge too. Or if you don’t owe any tax, they’ll penalize you for ignorance of the reporting requirements.
“Then knowledge becomes a weapon.”
Oops, now university graduation will be a terrorist activity and you’ll be stripped of Canadian citizenship.
@Furious
Even in 1776, it was still a war which turned the tides. I for one sure as hell hope we are not looking at another world war. And yeah- it is scary. The thing is, when people are pushed into a corner and have nowhere left to go, they FIGHT.
(Yawning…) Could that has-been of a nation please practice residence-based taxation like the rest of the civilised world? It really is that easy.
@Polly
Imagine what a cat would do if it were cornered…!
The next step will be to open Non-Fatca Bank, which will have lower expenses because it will not have FATCA compliance costs. Non-Fatca Bank, as I have suggested in the past, will draw in large amounts of deposits from slightly better rates. I have in the past mentioned that Non-Fatca Bank can open a branch in El Salvador or Ecuador, where the U.S. dollar is the legal currency, and could therefore operate in U.S. dollars, with the cheques clearing through the FATCA-exempt central banks.
Since then it dawned on me that the U.S. dollar is also the currency in Zimbabwe, so a branch there would be able to clear U.S.-dollar transactions through the Reserve Bank of Zimbabwe, the central bank there. Zimbabwe has no FATCA IGA and a number of banks in Zimbabwe have not obtained GIIN’s as of the last time I checked, though my info may be outdated; but if even one bank there is not going to comply with FATCA they could serve as the correspondent bank for U.S. dollar transactions.
Non-Fatca Bank will have a Canada Post branch in each bank branch, and will sell U.S.-dollar money orders for persons who need them.
A shame they had to dig Roy Berg out of the woodwork.
“I have in the past mentioned that Non-Fatca Bank can open a branch in El Salvador or Ecuador, where the U.S. dollar is the legal currency”
Don’t we need a Non-Fatca Bank in a place where the Canadian dollar is the legal currency?
“Non-Fatca Bank will have a Canada Post branch in each bank branch”
Oh no. Then cheques would get lost in the mail instead of clearing.
Can someone remind us what exactly would be withheld from a bank in the case of non-FATCA compliance, in a country without an IGA (i.e. Canada, soon 🙂 ??!!)
I cannot find clear information. On the IRS website: “FFIs that enter into an agreement with the IRS to report on their account holders may be required to withhold 30% on certain payments to foreign payees if such payees do not comply with FATCA”
My question is: Bank of X is non-compliant in a non-IGA country. What US money leaving the US to go to Bank of X will undergo the 30% withholding?
– ALL of the US money coming to the bank?
– “A withholdable payment is a payment of either: U.S. source income that is fixed or determinable, annual or periodical (FDAP) income; or gross proceeds from the sale or other disposition (including redemption) of property that can produce U.S. source interest or dividend income.”?? Whatever that means (source: Thomsonreuters).
– Is this money to specific US-person (recalcitrant…?) accounts, or does it apply to everybody’s money (i.e. I am compliant, in a non-compliant bank, so my US income is taxed 30%; in that case can I reclaim that money by dealing directly with the IRS?)
Has this been applied yet?
Thanks
@Tomalciere
A nonFatca bank is a good idea, but it would have to avoid all US dollars. BNP Paribas was fined billions for doing business with Iran in dollars.
Polly: it seems to me the US always get banks by the cojones because of US implications, i.e., we’ll clobber you in the US if you don’t pay this fine. I don’t see how they can prevent a non-FATCA bank from using US dollars. The US can’t prevent Ecuador, Cambodia (where ATMs give out USD) or Zimbabwe from adopting the US currency. The US could start intimidating compliant banks from doing business with non compliant banks, but that’s about it. If a bank has no US business, they cannot do anything to it, even if it uses dollars.
In fact this whole mess happened because the banking system is largely dominated by international banks, all with a lucrative foot in the US, and thus are subject to initimidation. If most people had money in local banks, meaning banks that only do business in their country, the US couldn’t do much about that. This is also why the banking lobby supported IGAs: to help them comply. I don’t see why a French bank doing 99% of business in France would ever bother worrying about FATCA. But BNP, SocGen, whatever, are huge and worldwide — they need and want the business, and thus need and want an IGA. Hence the beauty of getting an IGA nullified, as we hope will happen in Canada.
@Fred
“The US could start intimidating compliant banks from doing business with non compliant banks, but that’s about it.”
That’s exactly what it means to be a registered FFI, i.e. the US Treasury/IRS don’t do the dirty work themselves, the FFIs do. If a registered FFI is to send USD to a non-registered FFI, the former is required by IGA to do the 30% withholding on the entire USD amount and pass that amount to the US Treasury/IRS. The only (theoretical) way for a non-registered FFI to get around the withholding on USD transactions would be to transfer directly to another non-registered FFI, of course that means no SWIFT transactions or any transaction involving a registered FFI anywhere in the chain.
Ginny Hillis says
August 5, 2015 at 3:15 pm
And security guards almost had to be called in as the court room attendees got a little too carried way with snickers when the Federal lawyer said:
“nobody held a gun to our heads to make Canada sign FATCA”
NUCLEAR WEAPON held to Australian govt head. Read the Joint Standing Committee on Treaties – 16/06/2014 – Treaties tabled on 19 March and 13 May 2014 http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22committees%2Fcommjnt%2Fac81161b-e61c-4564-88ea-b08eaee400ff%2F0002%22
Alby: thanks for reposting. That Australian exchange is very interesting and answers many different questions, including mine about the withholding.