Read it and Weep… What is REALLY in the Canada-U.S. Tax Treaty https://t.co/5MU3tcvfst
— Patricia Moon (@nobledreamer16) April 1, 2016
The current version of the The Convention Between Canada and the United States of America was signed September 26, 1980.
Since then, there have been 5 protocols to amend the Treaty: 2nd-June 14,1983; 3rd-March 28 1984, 4th-July 29, 1997 & 5th-September 21, 2007.(dates signed)
In Canada, a treaty is not approved per sé by the Parliament. This was somewhat of a surprise to me, due to witnessing the recent chain of events with the signing of the IGA on Feb 5, 2014, watching the (limited) debate process leading up to Royal Assent on June 19, 2014. Given the fact it was very clear the CONs intended to approve it, I had no idea that all they were doing was dealing with the implementation of it. It appears that Canada treated the IGA as if it were a Treaty:
Canada’s Approach to the Treaty-Making Process
After signature of an international treaty, once Canada is ready to be bound by it, a document is prepared establishing that the formalities for the coming into force and implementation of the treaty have been completed and that Canada agrees to be bound by the treaty. More formally, Cabinet prepares an Order in Council authorizing the Minister of Foreign Affairs to sign an Instrument of Ratification or Accession.13 Once this instrument is deposited with the appropriate authority, the treaty is officially ratified. At this point, Canada is bound by the treaty as soon as it comes into force (if it is not already in force).14
In January 2008, the federal government announced a new policy17 to enhance parliamentary involvement in the process by ensuring that all treaties between Canada and other states or entities are tabled in the House of Commons before ratification. The Clerk of the House of Commons distributes the full text of the agreement accompanied by a memorandum explaining the primary issues at stake, including subject matter, primary obligations, national interests, policy considerations, federal-provincial/territorial considerations, implementation issues, a description of any intended reservations or declarations, and a description of consultations undertaken. The House of Commons then has 21 sitting days to consider the treaty before the executive takes action to bring the treaty into effect through ratification or other preliminary measures, such as introducing legislation. The House has the power to debate the treaty and to pass a motion recommending action, including ratification; however, such a vote has no legal force.
One thing that this demonstrates is that Canada most definitely was in compliance with the terms of the IGA on the day it was signed. I am not sure this was known by some members in Parliament. There simply was no need to rush the implementation of the IGA. Why the big hurry? Yet the CONs did this in spite of recommendations to spend more time (as per Prof. Allison Christians, Prof. Arthur Cockfield and John Richardson).
Remember this?
Murray Rankin: Mr. Richardson, in your remarks, you say there’s no reason to rush this through, yet you’ve heard from Mr. Hannah that there would be problems with the 30% withholding tax and the access by banks to the foreign capital markets in the United States. What’s your response to that?
Mr. John Richardson: He’s completely wrong. The obligation is satisfied upon entering into the IGA. That has been done. The agreement states very specifically that it doesn’t take effect until Canada gives notification.
Non-CON MPs picked up on the idea that a better agreement could have been negotiated and agreed that it was obvious more time should have been spent dealing with it as a standalone item. As was seen here, the Senate certainly saw a lot of problems with the IGA.
The point of this post will be to look more closely at the interaction between the Treaty, the ITA, The Privacy Act and PIPEDA. Unfortunately, while doing this, I discovered something which I believe, has not been known by most of us but which, in fact, has been in the Treaty all along and why the government claims the IGA is authorized by the Treaty. This begs the question, WHY then, was it necessary to have the IGA; and/or why was it not added as a protocol as other changes have been made since 1980? I am still sure Prof. Christians is right; the IGA is a tax-treaty override and it is not a valid document. But I want to understand how these 4 documents and timings connect to produce the mess we are in today.
I recently had a second huge OMG moment. For a reason I cannot currently remember (sigh, definitely a seniors’ moment) I had started reading the ITA and the Tax Treaty. It seemed a couple of timings were odd and I decided to re-read the Tax Treaty thoroughly. I wondered, why on earth does the government claim the IGA is authorized by the Treaty? I couldn’t see anything differently than I ever had. So in searching, I came across this:
Canada-US Tax Treaty A Practical Interpretation 3rd edition 2009, © CCH Canadian Ltd.
This phrase, “a treaty country may not argue that its domestic bank secrecy laws or other similar laws allow it not to exchange information…” caused my 2nd huge OMG moment. How could it be that this was signed while PIPEDA & the Privacy Act were in force? OMG this is the worst possible thing I could come across. Please tell me this is NOT true.
I finally noticed I was not looking (and apparently never have) at the most current version of the Treaty. I often will bookmark something and never even think about it again. However, unless one focuses on the year and/or which protocol, it is completely possible to miss what was added.
In the IGA we find:
Whereas, Article XXVII of the Convention Between the United States and Canada with Respect to Taxes on Income and on Capital done at Washington on September 26, 1980, as amended by the Protocols done on June 14, 1983, March 28, 1984, March 17, 1995, July 29, 1997, and September 21, 2007 (the “Convention”) authorizes the exchange of information for tax purposes, including on an automatic basis;
So just where IS authorization to report bank accounts?
Looking to the Treaty, the fifth protocol was signed on September 21, 2007,and came into force December 15, 2008. Interesting that the Swiss Bank debacle was was heating up and OVDP hadn’t even started yet – but was a mere 3 months away. (March 26, 2009). In fact, if you look at the document just linked to regarding the debacle, you will see the lawyer references the “regular” voluntary disclosure program that had been in place for many years. Not a whiff of what was about to come. FATCA hadn’t even been introduced yet. I cannot imagine for even one minute though, that it is coincidence these Treaty changes are unconnected to all of what followed. And yet, back in 2008, I sure don’t remember hearing anything about bank account information being fair game, not in the press, not from the government, not from anywhere. Do you? Can you believe we are just now witnessing the State Department attempting to let people know of their tax obligations? The whole situation is still, simply unbelievable.
In Article 23
Exchange of Information we find:
N.B. Article XXVII (Exchange of Information) of the Convention shall be deleted and replaced by the following…………..
3. In no case shall the provisions of paragraph 1 and 2 be construed so as to impose on a Contracting State the obligation: (a) To carry out administrative measures at variance with the laws and administrative practice of that State or of the other Contracting State; (b) To supply information which is not obtainable under the laws or in the normal course of the administration of that State or of the other Contracting State; or (c) To supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (ordre public).
Ok, great, I have always read this to mean that this would prevent any Canadian organization from reporting on personal financial information due to PIPEDA and/or The Privacy Act. I also thought it was the last Paragraph in this Article because I was looking at an earlier version. But look at what follows Paragraph 3:
5. In no case shall the provisions of paragraph 3 be construed to permit a Contracting State to decline to supply information because the information is held by a bank, other financial institution, nominee or
person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person.
as well as:
6. If specifically requested by the competent authority of a Contracting State, the competent authority of the other Contracting State shall provide information under this Article in the form of depositions of witnesses and authenticated copies of unedited original documents (including books, papers, statements, records, accounts, and writings).
7. The requested State shall allow representatives of the requesting State to enter the requested State to interview individuals and examine books and records with the consent of the persons subject to examination.
Sound familiar? Here we have the U.S. saying (in spite of our laws?) in no case could Par 3 be used to protect banks and financial institutions (IOW, honour our laws?). And our goverment signed this? There was no 30% withholding threat in this document. Why on earth would they agree to this? (Remember, this is the Treaty in 2008 not the IGA).
I wondered whether CRA was actually able to access to that information. So I looked to the
Privacy Act where there were Recommendations April 29, 2008 (i.e., applicable because falls after the protocol was signed and before it came into force).
Strengthen the provisions governing the disclosure of personal information by the Canadian government to foreign states. Relevant Section(s) of the Privacy Act:
Paragraph 8(2) Subject to any other Act of Parliament, personal information under the control of a government institution may be disclosed ? (f) under an agreement or arrangement between the Government of Canada or an institution thereof and ? the government of a foreign state, an international organization of states or an international organization established by the governments of states, or any institution of any such government or organization, for the purpose of administering or enforcing any law or carrying out a lawful investigation.
This paragraph was directed toward issues of “regulating the movement of goods and people and to combating transnational crimes and international terrorism.”
Further:
However, the Privacy Act does not reflect this increase in international information sharing. The Privacy Act places only two restrictions on disclosures to foreign governments: an agreement or arrangement must exist; and the personal information must be used for administering or enforcing a law or conducting an investigation. The Privacy Act does not even require that the agreement or arrangement be in writing. The Privacy Act does not impose any duty on the disclosing institution to identify the precise purpose for which the data will be disclosed and limit its subsequent use by the foreign government to that purpose, limit the amount of personal information disclosed and restrict further disclosure to third parties. Moreover, the Privacy Act even fails to impose any basic obligations on the Canadian government institution itself to adequately safeguard personal information.
As reported in the OPC’S 2002-2003 Annual Report, the Office conducted a preliminary review of 21 information-sharing agreements between Canada and the US. It concluded that only about one-third were reasonably well drafted. To mention just two deficiencies: many of the agreements did not describe the personal information to be shared or include a third party caveat; that is, a statement indicating that the information received under the agreement will not be disclosed to a third party without the prior written consent of the party that provided the information.
So apparently the CRA could not, (due to domestic law-the Privacy Act) until changes were made, share banking information even though it was authorized to do so in the Treaty as of 2008. And in addition to revving up the Treaty, changes were being made to PIPEDA long before FATCA came.
This is the first time I have ever felt the Canadian government failed us long before they signed that IGA. They knew this all along; did not alert us beforehand. Yes, it is a US requirement but they knew. And did absolutely nothing to protect Canadian citizens who were about to have their lives completely ruined.
END OF PART I
“5. In no case shall the provisions of paragraph 3 be construed to permit a Contracting State to decline to supply information because the information is held by a bank, other financial institution, nominee or person…”
Yet, as I understand it, the US will not provide such information to its treaty partners.
@JohnCanuck,
yes, exactly. But we all know how the US views itself………
just curious, were you aware this information was in the last version of the treaty?
Thank you. This is quite the research and analysis you’ve done, Patricia. Amazing.
And, yes, as always — US exceptionality with CBT seems to trump all as one of our Canadian Conservative government representatives, MP Mike Allen, reminded — *Congress has spoken*.
“normal course of the administration of that State”. The IGA made the collection of US person information by banks (in the FATCA format) the normal course of the administration of that State.
The betrayal of the Canadian government, IMO, starts with the signing of tax treaty itself. Written by the US Treasury (mostly), it is fair for nonUS person Canadians with investments in the US. It is not fair or just for Canadian residents with US roots – suffering from the overlay of two sovereign tax systems whilst tax resident in Canada.
Canada should have insisted on exemptions and provided absolute clarity for Canadian residents to exclude them from both various aspects of CBT and from CBT itself. After all, Canada is not a tax haven, is a sovereign country, and generally believes in Residence Based Taxation. But the Canadian Government drank the US Treasury Department Kool Aid about “preventing” double taxation and signed the tax treaty under the misconception that it was “all good.”
The title of the post was “Tax Treaty.” The content mostly about FATCA information grab. The tax treaty, IMO, would fail #CharterFirst review (as long as it was not conducted by Canadian Civil Liberties – and their compliancer President). So then perhaps ADCS thought the FATCA IGA the lower hanging fruit? No doubt the injustices will come out during the trial as they started to come out for those listening in the summary trial.
@Patricia, I do note here that you did not say anything about the Canadian Government changing privacy laws to make way for the Canadian FATCA IGA. Here in Australia, the privacy laws were changed to allow exemption in case of international treaty. Australian privacy was outsourced to the US under Australian law, not via the IGA alone but facilitated by Australian privacy legislation! Maybe the Australian Government feared the privacy legislation more than the discrimination legislation as I don’t believe that was changed.
Canada is “the front line” in all this as the country has the best chance of critical mass of numbers to turn back the US Treasury Hun. Go get ’em! You have my support!
@JC
No.You are missing the point. I am creating a line of events here. I am not yet talking about FATCA. You are skipping to FATCA.I am showing the steps they had to take to get there since they missed certain aspects of it along the way. And I also am not yet to the discussion of the signing of the IGA, changing the law etc. I am putting in parts that most of us are not aware of as they ocurred before the IGA. So please don’t jump the gun and assume I have missed something. I have a purpose here.
Yes, the betrayal of the Canadian people begins with the Treaty. But they left out things they needed to add, in order to complete the betrayal. So in 2007 protocol for the Treaty, paragraphs 5, 6, & 7 are added. IN 2008, The Privacy Act is widened to allow CRA to actually receive that information from the banks, ( (PIPEDA does not apply to the CRA). It is necessary to understand this as it sets the stage for the later events. FATCA has not even been passed yet. The UBS situation is moving along. I am stopping at this point for a reason………Mainly to get to the point for an understanding of where the government position originates. I did not see this before and I suspect others were also unaware of how this came about.
As to whether or not the Treaty is Charter-proof..I have never heard anyone mention challenging a Treaty on those grounds. I am not sure if that is even possible. Though the IGA (viewed by the Canadian government as a treaty, though not by us) has provoked a Charter challenge. I suspect most people had no idea what was being done particularly because in 2007-2008, the Canadian “awakening” had not even begun. Nobody knew about CBT, tax and information reporting forms. At least most of us did not. That ocurred for at least the core Brock group in mid-late 2011.
The problem here is to misunderstand the economic relationship of the Canadians with the Americans. We are always the small guy, dependent upon the US and not in a strong fiscal position to push them. I fail to see any country (in terms of a government) approach the U.S. on any of these issues from a moral or ethical point of view. As far as being a “frontline country” this has nothing to do with the government and everything to do with the people who have supported the ADCS legal challenge. We have a long and tough road to walk yet. As was often said in the beginning, this is a marthon, not a sprint. I imagine I am unlikely to see the changes that may result from this in my lifetime. That is how difficult I see this process. Others may not agree.
I have to read and re-read this great post, but need to think about it more, though one thing I noticed was this aspect about the compromise of trade and commercial information :
……..”3. In no case shall the provisions of paragraph 1 and 2 be construed so as to impose on a Contracting State the obligation:…or (c) To supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (ordre public).”
Perhaps that is what NDP MP Rankin was thinking of when he asked Brian Ernewein;
“Here’s where I’m going with the question. If it does cover corporate persons, or other trusts of the like that are subject to this as U.S. persons, has there been any study done on the implications, for example, of improperly revealed information that might harm the competitiveness of industries in Canada, or entities—as you put it—in Canada?”
https://openparliament.ca/committees/finance/41-2/31/murray-rankin-23/
and,
“I’m sorry, regarding the question earlier about whether or not you did a study on the implications for the competitiveness of Canadian entities, if their information was found in the United States, has there been any analysis undertaken?”
https://openparliament.ca/committees/finance/41-2/31/murray-rankin-26/
And General Director, Tax Policy Branch, Department of Finance
Brian Ernewein basically refuses to answer re any study or consideration on the effect on the competitiveness of Canadian entities, saying;
5:15 p.m.
“Well, the answer is no, because we challenge the premise of the question— ”
https://openparliament.ca/committees/finance/41-2/31/brian-ernewein-46/
We’ve been focussed naturally on the impact on individuals and families, but what if the IGA does in fact compromise information belonging to Canadian businesses – an outcome which is contrary to Canadian public interest, and as the treaty quote above says;
“…….the disclosure of which would be contrary to public policy (ordre public).””
So if Finance didn’t do any study, and refuses even to contemplate whether the IGA has a compromising effect on “……. the implications for the competitiveness of Canadian entities, if their information was found in the United States..”, perhaps that is a vulnerability of theirs. You don’t do a study if you don’t want an answer which may confirm something contrary to your intended plan, and you think you might get an adverse result.
And in addition, the Cons and now the Liberals won’t address the handicap that Canadian financial and NON-financial institutions face in FATCA implementation costs which US FIs don’t. Isn’t that an offense under FATCA to make another country’s industry uncompetitive by giving your own domestic industry an advantage? The data insecurity imposed on the information collected under the FATCA IGA and the cost of implementation burdens Canadian businesses bear are anti-competitive.
Didn’t we just read the US complaining that the EU was going to “…disproportionately target[s] U.S. companies” :
“………..“Treasury should remain vigilant in oversight and be prepared to take action to ensure American businesses do not fall victim—retroactively—to a novel legal theory that undermines the U.S.-EU tax treaty network and disproportionately targets U.S. companies,” he [Senate Finance Committee Chairman Orrin Hatch (R., Utah)] said.”
http://www.wsj.com/articles/treasury-department-reviewing-retaliatory-tax-law-against-eu-1457120228
@Calgary,
Thank you. This has been a confusing process for my mostly-musical head. LOL
@badger
These are very good thoughts but I can see that paragraph 3c of Article XXVII Exchange of Information predates the IGA. I do not know exactly when it was included but it has been part of the Treaty since at least the Third Protocol:
Convention Signed at Washington, D.C. on September 26,1980;
Protocol Signed at Ottawa June 14, 1983;
Protocol Signed at Washington, D.C., March 28,1984;
Ratification Advised by the Senate of the United States of America on June 28, 1984;
Entered into Force August 16, 1984.
This is an excellent point. My guess would be it would be an offense under the Treaty or NAFTA. I don’t see anything in the IGA that would acknowledge any offenses. Other than the ones that are actually built right into it with ALL of the liability/costs placed upon the other party and NONE on the U.S
And yes, the EU is starting to go at this but it appears to be from the Treaty point of view not FATCA.
I am trying to determine/learn why the IGA actually exists at all. The Treaty already is slanted in favour of the U.S. Something I had not really thought much about since we have all been so focused on FATCA and the IGA. So I suspect Mr. Ernewein knew quite clearly that no studies were done long ago when they should have been. And we know even the U.S. did not studies at all about FATCA. I am curious exactly as to what he means by ““Well, the answer is no, because we challenge the premise of the question— ” However, I want to stay focused on looking for anywhere they may have missed something or where something may not actually be appropriate. I leave the bigger issues of industry competitiveness to the bigger brains, LOL.
That said, this year is the first for “entity reporting.” This includes for example, Paypal Canada asking ADCT to confirm certain details. (none concerned any balances etc). This is because ADCT opened an account after the close of the first year of reporting deadline to the CRA. ADCS was not asked these questions because it had a pre-existing account. I have only looked at the entity issue as the unbelievable invasion of non-US organizations hunting out US Persons. I believe USCitizenAbroad referred to it as “the second wave.” Since our orgs do not meet that criteria, our information is not affected. But it would be a different story for any where US taint was large enough to make the entity a US Person for reporting purposes. The issue of competitiveness goes far beyond what I am trying to do here so I can’t speak much to that.
I just ordered the fourth edition of this book as the commentary is helpful in understanding the level of what is being disussed, etc. Hopefully it will come in handy for us in the future.
@badger
other excerpts from the same article:
Here again, we see the US imposing its law on non-US persons and corporations. And just look at the names on that request.
Should they apply this, particularly after the unprecedented economic sanction in order to force FATCA, the pushback may become quite interesting. I am sincerely hoping that this whole business will implode upon itself, given it is constructed only for U.S. gain and at the expense and risk of everyone else.
@badger, I think I have misunderstood you. Look forward to discussing.
the video that covers what badger has discussed:
the section on the IGA begins at 16:35:00
the section on entities begins at 17:14:26
since it is not a youtube video, I do not know how to set it at the exact spot
Thursday, May 1, 2014
Meeting No. 31 FINA – Standing Committee on Finance
Murray Rankin is as expected excellent. Warning: You will be even angrier with Mr. Keddy. Makes a comment that instead of Canadian citizens, Mr. Brison is really referring to American citizens living in Canada….” This man is simply an absolute moron.
There are two talking points here, that have been repeated over and over and over.
And they simply ARE NOT TRUE.
First, Mr. Ernewein suggests there is no longer any 30% withholding due to the negotiation of the IGA.
Directly from the IGA:
Article 5
Collaboration on Compliance and Enforcement
Significant Non-Compliance.
a) A Competent Authority shall notify the Competent Authority of the other Party
when the first-mentioned Competent Authority has determined that there is
significant non-compliance with the obligations under this Agreement with
respect to a Reporting Financial Institution in the other jurisdiction. The
Competent Authority of such other Party shall apply its domestic law (including
applicable penalties) to address the significant non-compliance described in the
notice.
b) If, in the case of a Reporting Canadian Financial Institution, such enforcement
actions do not resolve the non-compliance within a period of 18 months after
notification of significant non-compliance is first provided, the United States shall
treat the Reporting Canadian Financial Institution as a Nonparticipating Financial
Institution pursuant to this subparagraph 2(b).
This suggests to me that the withholding on Financial Institutions has only been put off, but the potential for penalty stands. It is not true that the Canadian contingent negotiated the sanction out of the IGA.
Mr. Ernewein indicated that the exemption for FFI’s with less than $175 million and/or 98% local residents making up base of clients etc, was not limited to Canada and that other countries also received this.
Second, the nonsense brought up by Andrew Saxton. He claims that Canada received benefits that other countries did not. This is absurd and I couldn’t be more sick of hearing this.
He claims Canada has received benefits that were not available to other countries; specifically with regard to the issue of the registered accounts. I have put this link up now, for years. Literally. It is very clear that while Canada may have more types of registered plans than many countries, other countries did indeed, receive this same benefit.
Here for example is what Australia was granted: (this seems even more than Canada)
I. Australia (4-28-2014)
Under the US-Australia IGA, the following categories of retirement funds will be treated as
exempt beneficial owners:
A. Any plan, scheme, fund, trust, or other arrangement operated principally to administer
or provide pension, retirement, superannuation, or death benefits that is a
superannuation entity or public sector superannuation scheme (including an exempt
public sector superannuation scheme) as defined in the Superannuation Industry
(Supervision) Act 1993, or a constitutionally protected fund as defined in the Income Tax
Assessment Act 1997.
B. A pooled superannuation trust as defined in the Income Tax Assessment Act 1997.
C. Any Entity that is wholly owned by, and conducts investment activities, accepts deposits
from, or holds financial assets exclusively for or on behalf of, one or more plans,
schemes, funds, trusts, or other arrangements referred to in subparagraphs (1) or (2) of
this paragraph.
In addition, the following categories of accounts shall not be treated as financial accounts,
and therefore shall not be US reportable accounts:
A. Retirement and Pension Accounts:
1. A complying superannuation/FHSA life insurance policy as defined in the Income
Tax Assessment Act 1997.
2. An exempt life insurance policy as defined in the Income Tax Assessment Act 1997,
other than a policy referred to in subparagraphs (e)(i) or (iii) of subsection 320-
246(1) of that Act.
3. A retirement savings account as defined in the Retirement Savings Accounts Act
1997.
B. Non-Retirement Savings Accounts. An account maintained in Australia (other than an
insurance or annuity contract) that satisfies the following requirements under the laws
of Australia:
1. The account is subject to regulation as a savings vehicle for purposes other than for retirement;
2. The account is tax-favored (i.e., contributions to the account that would otherwise be subject to tax under
the laws of Australia are deductible or excluded from the gross income of the account holder or taxed at a
reduced rate, or taxation of investment income from the account is deferred or taxed at a reduced rate);
3. Withdrawals are conditioned on meeting specific criteria related to the purpose of the savings account (for
example, the provision of educational or medical benefits), or penalties apply to withdrawals made before
such criteria are met; and
4. Annual contributions are limited to $50,000 or less, applying the rules set forth in Annex I of the IGA for
account aggregation and currency translation.
C. Certain Other Tax-Favored Accounts:
1. An employee share scheme as defined in the Income Tax Assessment Act 1997.
2. An employee share trust as defined in the Income Tax Assessment Act 1997.
3. An FHSA (first home saver account) as defined in the Income Tax Assessment Act 1997.
4. A funeral policy as defined in the Income Tax Assessment Act 1997.
5. A scholarship plan as defined in the Income Tax Assessment Act 1997.
How can they possibly claim Canada received exemptions that other countries did not?
@Tricia, re; “…paragraph 3c of Article XXVII Exchange of Information predates the IGA.”
That is what got me thinking, because it meant to me (?) that for the CRA, Finance, etc. to be characterizing the FATCA IGA as just an outgrowth of the pre-existing treaty seems inaccurate in terms of that section? If that paragraph predates FATCA, didn’t the IGA have to be designed to override it?
(And, not to derail your very good thread here, but for more re “Treasury said it is studying Section 891 of the Internal Revenue Code, which allows the president to double U.S. taxes on individuals and corporations from countries that are deemed to have subjected U.S. citizens and companies to “discriminatory or extraterritorial taxes.””
See also;
http://www.finfacts.ie/Irish_finance_news/articleDetail.php?US-Tax-Reform-Failure–Warns-EU-with-never-used-82-year-old-law-563
with links to;
http://waysandmeans.house.gov/wp-content/uploads/2016/02/20160224fc-Grinberg-Testimony.pdf
and
http://iielaw.org/wp-content/uploads/2015/08/A-Constructive-U.S.-Counter-to-EU-State-Aid-Cases.pdf
http://www.finance.senate.gov/chairmans-news/finance-committee-members-push-for-fairness-in-eu-state-aid-investigations-
The Mythster Stack comes up in statements whining about the “extraterritorial taxation” of US corporations by EU member states. )
@badger
As I see it, since the later paragraphs mention the banks and financial institutions directly, there could be a point made that the idea of reporting bank information comes from the Treaty – yes, this is the exact point of the post.
What is odd is that paragraph 3 c is an example of of the IGA not matching the treaty; I forget the phrase they use at the moment but there is a conflict if what Mr Rankin and you are onto is an outcome of the IGA.I am not sure I would characterize that particular section of what it is the IGA is overriding. My expectation would be that it would involve much more but I can certainly see it as a part of that.
YIKES, the Stackster! I expect now, to have nightmares!
And re the 30% witholding still swinging above the FIs heads even WITH the FATCA IGA: despite what Ernewein and the CONS wanted us to believe in their deliberately specious and misleading talking points, we have this statement (FWIW) http://www.parl.gc.ca/HousePublications/Publication.aspx?Language=e&Mode=1&Parl=41&Ses=2&DocId=6597204#Int-8359358 . I would not have cited that source, but it was handy, and it was one that otherwise was a friend of Finance and the Cons.
“other excerpts from the same article:
‘The U.S. Treasury Department said it is “closely” reviewing a never-used 82-year-old law that would impose retaliatory double taxes on European Union companies and individuals.
The Treasury said it is studying Section 891 of the Internal Revenue Code, which allows the president to double U.S. taxes on individuals and corporations from countries that are deemed to have subjected U.S. citizens and companies to “discriminatory or extraterritorial taxes.”’
So the US is indeed monitoring IBS.
http://isaacbrocksociety.ca/2013/02/02/internal-revenue-code-severely-punishes-countries-which-impose-extraterritorial-taxation/
I think the conflict is that under the treaty, Canada was not obliged to;
“…..(c) To supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (ordre public).””
But to divulge the balances, transactions, withdrawals, deposits, and interest earned on business accounts, along with other information demanded by the FATCA IGA, as applied to businesses, and then sent to the US – subjected to the Patriot Act, and then shared however the US saw fit, could potentially undermine Canadian businesses and give valuable info to their US competitors.
Look at how fierce the US/Canada fight is over softwood lumber as a contested industry. I suspect that there and in the tech sector, etc. inferences could be drawn as to the health of a business or industry from the FATCA IGA mandated information that FIs would send to the US via the CRA. And, as bubblebustin has pointed out, that is information that the CRA would not completely have been able to routinely have access to en masse. So the CRA can sift and access the info before it goes to the US, and the US can do whatever it wants with it after it crosses the border. We have no way of knowing how many Canadian businesses small or large have Canadian owners who the US deems ‘UStaxablepersons’.
No study has been done. No cost benefit analysis.
It was totally disingenuous BS for the CRA and Finance to pretend that there is any control or oversight over what happens to those records once the US has them.
If 9/11 were really the reason for overturning Canada’s privacy legislation, CRA would give the IRS information about Canadian bank accounts held by Saudi persons not US persons.
If terrorism were really the reason, it would be correct to include persons from one of the world’s biggest operators of state sponsored terrorism, but it would not be correct to omit persons from lesser operators such as France (remember the Rainbow Warrior), UK (ask the Irish), Islamic State, Iran, Syria, Russia, etc., etc., etc.
Sorry, my main point above is that the pre FATCA treaty did not oblige the contracting state to; “..information the disclosure of which would be contrary to public policy (ordre public).”””
Divulging sensitive industry or business financial information would probably contravene Canadian public policy.
So not just about privacy, data protection, and NAFTA/trade, or competition issues, but also “contrary to public policy”.
So, in terms of inconsistency, how does the FATCA IGA purport to override that portion of the pre-existing treaty? Particularly when the feds argue that the IGA is merely an adjunct to it, and NOT a treaty override (as Allison Christians says in her testimony before Finance, and in her papers).
And Arthur Cockfield is clear that Canada gets nothing more special from the IGA than any other Model 1 signatory.The only difference is really the difference in the terms of the pre-existing tax treaties the US has with us and others. And in fact, I read that the US Treasury chose to do MODEL IGAs because they didn’t want to make exceptions and negotiate with each and every country separately – even for Canada. And, isn’t there an IGA clause wherein if one Model 1 country gets better terms, the others do as well?
I meant:
“that the pre FATCA treaty did not oblige the contracting state to PROVIDE; “..information the disclosure of which would be contrary to public policy (ordre public).””””
This is all very interesting. Thank you so much for digging into this Trisha and badger your very informed comments as well. Thank goodness you are continuing the search for knowledge but I must admit it makes me dispair.
All these pre-Internet treaties were meant to exchange information on a ‘case by case’ basis not mass information exchanges.
The US would have to have a name, and reason for requesting this information. What the US has done has unilaterally redefined these treaties to accommodate FATCA / IGAs.
There needs to be a lawsuit started in the EU (whatever is left after June 23).
@Patricia
As a practical matter all tax treaties are approved by Parliament in order to make the necessary changes to Canadian domestic law in order for the treaties to be ratified. As such the treaty is contained within the Canada-United States Tax Convention Act of 1984 found below:
http://laws-lois.justice.gc.ca/eng/acts/C-10.7/page-1.html
An Act to implement a convention between Canada and the United States with respect to taxes on income and on capital
Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:
Short title
1 This Act may be cited as the Canada-United States Tax Convention Act, 1984.
2 In this Act, Convention means the Convention between the Government of Canada and the Government of the United States set out in Schedule I, as amended by the Protocols set out in Schedules II, III, IV, V and VI.
Other tax treaties are contained in similar pieces of legislation such as the Canada–Armenia Tax Convention Act, 2004 or the Canada–Gabon Tax Convention Act, 2004 to pick two fairly obscure countries that yet have there own legislation.
http://laws-lois.justice.gc.ca/eng/acts/C-0.7/page-1.html
http://laws-lois.justice.gc.ca/eng/acts/C-5.8/index.html
Don,
Something like *due process* that was hijacked with the implementation of the IGA that allows FATCA law into a sovereign country, Canada and others?
@Tim
They are approved but it is not a requirement legally. If they decide they don’t want to pass it, the executive can push it through without them.
@Don
The previous exchanges were based only upon temporary residents in either country. Only interest paid on a few types of accounts. And as you say, no bulk reporting.
As Professor Cockfield has emphasized, the IGA has opened up a whole new reigme. Reporting is now based upon permanent residents as well as far more types of accounts.