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
Analyzing the tax treaty – a daunting task that I lack the brainpower and confidence to ever attempt to do. Doesn’t mean I can’t appreciate what others can extract from it, however.
Thanks for the insights!
Thanks for that point that in Canada treaties; “… 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.”
I need to read and re-read the logical path you’re laying out for us so patiently and painstakingly. I am sure that my brain is just not comprehending all the nuances sufficiently.
Thank you for your analysis.
@ Don
“All these pre-Internet treaties were meant to exchange information on a ‘case by case’ basis not mass information exchanges.”
BINGO! That’s what I’ve been thinking too. FATCA is essentially a big fat John Doe Summons the USA has served on the whole world. Countries which have signed FATCA IGAs have said that was fine by them (not really but they took the sanction threats seriously) and then twisted their own laws to accomodate the US law. Probable cause is gone and everyone is guilty of form crime until the USA says they’re not.
Anyway, that’s how all this filters out in my little head. It probaly oozed out all wrong so I’ll keep trying to understand the true implications of what Tricia has brought to light. My general impression is that it looks grim on the tax treaty front. It almost seems like the existing Canada/US tax treaty at the time of the FATCA attack had already provided, in some way, an easy entry for the giant FATCA data probe. Those damn treaty negotiators (Canada’s side) didn’t know what they were doing … unless they deliberately wanted to screw Canadian citizens/residents.
@ Tricia
Are we at least on firm ground with the Charter rights violations argument re: equal treatment for all, no matter their national or ethnic origin? Does Charter trump Treaty?
I hope Schubert at the Maple Sandbox doesn’t mind me cross-posting this link to his comment …
http://maplesandbox.ca/2016/what-is-really-in-the-u-s-canada-tax-treaty/comment-page-1/#comment-534998
It makes me think back to when Stephen Harper was apparently vetted by the Bilderberg Group, 3 years before he became PM. These elite creeps plan things years in advance — some say as far as 50 years but I don’t know about that. Anyway the Harper gov’t definitely facilitated FATCA and gathering all info, all the time, is the name of the game for the NWO types.
@Tricia
Thanks for a thought provoking post. I think I need more time to fully digest it, but I think it would be useful for me to consider the same questions with respect to the Australian treaty. In our case, we have only one amendment to the treaty, so putting the puzzle together is a bit easier. The article on exchange of information (Article 25) in the Australian treaty seems to be a bit leaner than the similar provision in the Canadian treaty. Plus, the ATO has very broad powers to collect information from financial institutions. As far as I can tell, the ATO just needs to tell a bank that they need information and it will be disclosed — but I am not a legal expert and I’m not sure I fully understand the differences in basic legal principles between Australia and the US.
As for the IGA — I think you’re right; Canada doesn’t seem to have received anything more than what was given to other nations. When the IGA was being negotiated here, we contacted our superannuation fund. The CEO was extremely pleased to tell us that Australia was able to exclude superannuation from FATCA reporting, as if it was something specifically negotiated by Australia. (Is this part of the US negotiating strategy — make everyone else think they’re getting a concession when they’re just getting the model agreement?) Unfortunately, what everyone over here didn’t understand was that reporting by the FFI was just one side of the equation. Once a US Person is identified to the IRS on ANY account, they would be forced to come into IRS compliance and all of these “non-reportable” accounts would have to be disclosed on their FBAR and/or Form 8938. Excluding superannuation from the IGA did not make it exempt from US tax for US Persons.
Of all the account types listed in your quote from the Australian IGA, superannuation is, by far, the most significant with just over A$2trillion (approx US$1.5trillion) in assets under management at the end of 2015. The other account types are quite minor (I haven’t even heard of several of them).
To really understand this issue you have to go way back before the 1984 convention to the original 1942 and 1937 treaties. This was the first time Canada accepted the “right” of foreign state to tax its “citizens” residing in Canada. (Applicable to both the US and the Philippines). So Canada has been failing its citizens since 1937.
Key : Probable cause and a warrant!
Which IGA overrides and changed Canada’s laws.
Key in the wording: “adheres to OECD guidelines. NOT Canada’s laws.
OECD guidelines. Another nail in sovereignty’s coffin!
@ FuriousAC
Wait until son of Trudeau adopts the TTP. The nail gun will go crazy sealing the up that coffin lid.
@Tim
Thanks. What I am interested in here, is not the fact that Canada agrees to allow the US to tax. My interest is in the origins of the exchange of information…………
@EmBee
I cannot answer that question. I don’t think it will be a slam-dunk though. It is my understanding that it is difficult to make the case for Charter issues……..
@Karen
I would be curious to know about what you find. It may be that all those accounts are minor, but if you look at the link regarding that, basically all countries with accounts similar to our registered tax-deferred ones received exactly the same type of exemptions. And yes of course, just because they are not reportable does not indicate they are not taxable. The whole presentation of all of this is quite deceitful imho.
@ Tricia
You’re not exactly a ray of sunshine today, Moonbeam.
For a thorough grilling of former Minister Oliver, particularly by Murray Rankin in FINA Meeting May 6, 2014
Hear Mr. Oliver (and that utter moron, Mr. Keddy repeat over and over, this legislation does not apply to Canadians………) over and over and over oh and that gem, “Congress has spoken”
FINA #32 May 6, 2014
@16:10:36
http://www.parl.gc.ca/HousePublications/Publication.aspx?Language=e&Mode=1&Parl=41&Ses=2&DocId=6574148
@16:10
It is clear, particularly at earlier points in this video, that former Minister Oliver has barely a clue beyond the talking points. He even said, when Mr. Rankin pressed him to remove this provision for further study, Mr. Oliver replied that it wasn’t necessary because the Justice Department lawyers had proclaimed it was “Constitutional.”
This video is really, really disturbing. Mr. Rankin has never pushed harder….you will enjoy listening to him……
@Madame EmBee
OOhhhhhhh I am sorry. Always coming at this as a way to build protection along the way.
sometimes this is tough………
You’re bringing back memories, Trish. My husband isn’t a violent man, but when he heard Keddy say what he said, he wanted to plow him. Moron is right.
“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”
Capital? How’s this:
Any contracting state whose capital is named after a person shall pay a tax to any contracting state whose capital isn’t named after a person to compensate for the expense a person of both contracting states encounters in becoming a person of a single contracting state.
“Does Charter trump Treaty?”
Will all treaties get Trumped?
Reading through the notes from the standing committee on finance I am angry all over again.
I am astounded at how the Conservatives REFUSED to refer to us as Canadians. Just read through it , or watch the proceedings on YouTube. They called us US citizens, Americans in Canada, etc. The closest they came was “dual citizens”, and only because MP’s like Murray Rankin and Scott Brison would not let go of the issue. “THIS WILL NOT IMPACT CANADIANS” – Sure, because they do not consider us to be Canadians.
Their talking in circles around the issue of who is a Canadian kind of reminds me of the old “Who’ on first” skit.
This will not impact Canadians.
It does impact Canadians who are duals.
Only if they’re dual citizens.
Are duals Canadians?
And on and on…..
@Marie
Really depressing eh?
I left the US at 27 and renounced after living in Canada for 30 years.
My next-door-neighbor (when we still had our house) and I often spoke about this issue. He told me in no uncertain terms that he considered me a Canadian. I asked him, if not having been born here didn’t enter into it. He said, absolutely not.
Why can’t politicians understand this? Can you imagine them saying this to a South Indian Canadian? It is revolting……..I even raised my son as a Canadian
@Patricia
I thank goodness that the Conservatives are out. The Liberals may be a bunch of liars/morons/cowards, but at least they are not as malicious as the Cons.
@Marie
Absolutely agree. There was no one worse for Canada than Harper. What a destructive b@#$+-d.
Not surprised by Liberals. Our issue very different due to banks/US. Not excusing them just not much of a shock.
@Norman
Very funny!
Liars Morons Cowards just lay down for their masters. And know all too well who their masters are. Malicious Liars Morons and Cowards are just a rung lower on the ladder that is lower than a snake’s belly. And even lower than that are those ‘masters’ who do not live within sovereign territory nor care for freedom and liberty. ONLY in the tools they can use to enslave. And those who are elected to represent us know all too well who they answer to and it IS NOT us, the electorate, the taxpayer and citizen , whose money and liberty are thrown to the wolves and for WHAT?
You can bet your ‘bippy’ that TPP is that very mechanism. Trudeau has signed on already, but so did Harper. It needs ratification in Parliament to be implemented. Will we have a say at the point of discussion or will it be rammed through without even a sovereign whimper?
So infuriating that these decisions are made by people not of this country whose interests are personal and purient. And MUST BE STOPPED. WHO will do it?
IF TPP goes through even the courts are compromised , so our lawsuit will not be recognized whatsoever so it is very important to get this ruling ASAP
@ FuriousAC
I may be the only one here who gets your perfect wordplay of “… bet your ‘bippy’ that TPP …” and yes, you nailed the rest too.
The basic question put forth in going through all this is: WHY the IGA ?
IF the Treaty between Canada and the US was sufficient?
ONE: Treaty relies on ‘Probable Cause’ and a ‘Warrant’- which would supercede privacy laws due to probable cause. ON an individual basis or multiple bases depending on the warrant.
TWO: The IGA is illegal. It was pushed through by Treasury and not ratified by Congress. EVER.
Canadian politicians HAD to know this but considered the threat by the US to be greater than common sense and the law. ( quite often very accurate considering they are thugs and criminals)
In order to push through an illegal entity they had to override Canadian laws. Two wrongs do NOT make a right.
As Prof. Christians states, IGA OVERRIDES the Treaty and is NOT a part of the treaty.
FATCA illegality can only be implemented by an IGA , itself an illegality.
This comprises the most blatant treachery by US Treasury and engaged in by Canadian politicians too weak and afraid to stand for Canadian sovereignty and Canadian laws, actually CHANGING existing law to allow the snake to entwine and poison the entire financial culture of Canada squeezing the life out of social, cultural and financial well being of their own country.
When you combine that with the betrayal in 1974 of Trudeau turning over the Bank of Canada to the Bank of International Settlements ( a privately owned bank) and the current and former governments fighting upholding existing law to return control of the bank to the Canadian people, it is betrayal on all sides. Young Trudeau seems oblivious to his father’s own regret in later life in doing such a thing to the Bank of Canada and Canadian Sovereignty.
Regret of the elder Trudeau is lost on the Young Trudeau is very COLD comfort for all Canadians who now feel the betrayal of all Canadian politicians of all stripes of their own country.
If voter lethargy were not so prevalent one would think Recalls might be in order.
Realistically, however, the ADCS lawsuit is the ONLY ace Canadians hold and that is a very slim hold these days with witnesses reluctant to come forward to bear witness to the harm and complete upheaval of their lives and futures.
Considering the Panama Papers out today naming selected people as tax cheats, among them the head of Iceland. The very man who arrested corrupt bankers and jailed them.
NOT ONE US person is named. Quite a selective list one would think.
Forces beyond the control of Countries whole is daunting to individuals whose lives will be forever ruined if their names are made public makes it very difficult to stand up and be counted.
This is an interesting tidbit from an IRS document ‘Offshore Collection Techniques for ATAT Revenue Officers’ obtained by a US law firm via FOIA:
“..Almost all treaties contain some narrow provisions that provide for collection. However, there
are currently only five collection income tax treaties and one estate and gift tax treaty that have
broader provisions for assistance. Essentially, these five treaties provide that each contracting
partner may take whatever actions it would take to collect its own taxes to assist with collection
of the taxes owed the other treaty partners.
(Pictures of the flags of the United States, Sweden, Denmark, France, The Netherlands, and
Canada are shown.)
The first such mutual collection treaty was the income tax treaty with Sweden in 1939, followed
by Denmark and France in1948, and The Netherlands in 1949. The French Estate and Gift Tax
provision was also negotiated with collection assistance provisions at the same time.
By 1990 the world had changed significantly. Our universe of taxpayers was far more mobile;
tax havens abroad had become commonplace; and non compliance by U.S. citizens abroad was
skyrocketing. Consequently, we decided to test the waters with new treaty provisions. We
settled on a Canadian treaty due to the fact that we had a large volume of work in Canada and the
similarity of our tax administration. In November 1995, the Canadian treaty covered all taxes
collected by the two countries, not just the income or estate and gift taxes covered by the existing
European treaties….”…. pg. 85 ‘MCAR’ section
https://www.bragertaxlaw.com/docs/offshore_course_31629.pdf
https://www.bragertaxlaw.com/foreign-retirement-plan-account-information-from-irs.html
http://www.taxproblemattorneyblog.com/2016/03/even-irs-confused-australian-superannuation-accounts.html
Have a look at all the documents this law firm obtained.
There are very interesting tidbits in each different document. Well worth sifting through. Touch on OVDI, demonstrate no agreement on how to treat various employee retirement accts in OVDI, and re FBAR. Some emails seem to show that the IRS agents knew they were being inconsistent, and didn’t care.
For example, read through these;
“……..a series of emails between various technical specialists in the IRS’ Offshore Compliance Group, IPN OVDP Coordinator.
https://www.bragertaxlaw.com/files/lbi_responsive_docs.pdf
I think JustMe would have been interested in some of the behind the scenes IRS emails above.
New by Prof. Allison Christians;
Christians, Allison, While Parliament Sleeps: Tax Treaty Practice in Canada (May 17, 2016). 10 J. Parl. & Political L. 15 (2016). Available at SSRN: http://ssrn.com/abstract=2780874 or http://dx.doi.org/10.2139/ssrn.2780874
Abstract;
” Abstract:
Canada’s Parliament plays little but a perfunctory role in the adoption of tax treaties, even though these agreements have significant impact on Parliamentary autonomy over core national budgetary matters as well as core legal and administrative functions. This article argues that Canada’s tax treaty process reflects a studied and intentional preference against public engagement in international fiscal policy, and that this stance has a negative impact on the rule of law. The article demonstrates the governance issue posed by lack of meaningful Parliamentary oversight using a recent departure from stated treaty policy, namely, the passage of a controversial agreement to implement the Foreign Account Tax Compliance Act (FATCA), an aggressive and extra-territorial regulatory regime imposed on Canadian financial institutions by the United States. The article examines the implications of Canada’s approach to this and other tax-related agreements and concludes that a much more engaged and informed Parliament is vitally necessary to achieve integrity in Canada’s treaty process.”