Here is the Memorandum of Argument of our Plaintiffs (Gwen and Kazia) for our FATCA IGA legislation lawsuit that was submitted on October 3, 2018 to Canada’s Federal Court. [Note that text is limited to 30 pages.]
The Memorandum can be found HERE.
The gist of our argument (page 12) is that the FATCA IGA legislation is inapplicable to Provincially regulated institutions and violates Sections 7, 8, and 15 of Canada’s Charter of Rights.
Some Excerpts:
— “The Impugned Provisions trench upon the core of the provincial power over property and civil rights because they constitute the regulation of a particular industry – the financial industry – and the regulation of this particular industry is an exercise of the provinces’ core powers over property and civil rights.40″
—“…although some US Persons in Canada have obligations under US law to report their Accountholder Information to the IRS, they generally do not have an obligation to report this information to Canada.”
…“Canada admits that it does not know how many account records have been shared with the IRS which are associated with individuals who are not US Persons.49…”
—“That the Impugned Provisions authorize warrantless searches without any notice or means of judicial review of any kind is undisputed and fatal to their reasonableness.”
—“But Canada has admitted that it does not oversee – meaningfully or at all – the conduct of Canadian FIs in determining whose Accountholder Information will be reported to both Canada and the United States.”
—“…it is impossible for Canada to establish that its own use for domestic tax compliance purposes of Accountholder Information obtained pursuant to the Impugned Provisions (to which it admits63) is reasonable because Canada’s use of that information is unrelated to the objective underlying the Impugned Provisions.”
— “The plaintiffs and other reasonable hypothetical individuals have a reasonable expectation of privacy in their Accountholder Information. Canadian courts have observed that personal financial information prima facie attracts a reasonable expectation of privacy, and that individuals can reasonably expect their financial institutions to keep their information confidential.
—“Canada cannot justify the s. 8 infringement under s. 1 of the Charter because it cannot demonstrate that the Impugned Provisions minimally impair s. 8.”
—“Most importantly, the Impugned Provisions undermine the Group’s access to a basic aspect of full membership in Canadian society by denying them the protection of Canadian sovereignty by exposing them to the extraterritorial enforcement of another state’s taxation and tax compliance regime.”
NEXT STEPS:
— Canada responds to our Memorandum of Argument by November 21, 2018.
— We reply to Canada by December 7, 2018.
— Trial is held in Vancouver beginning January 28, 2019
Trump yelling at Canada for not helping ensure that US citizens pay their taxes would be a bit rich…
I can see the reportage now: “The president today complained that Canadia, the large country to America’s north, has not been doing its part to combat tax evasion. A response from Toronto is expected.”
Also: “Prime Minister Ford is a fine man, we have a very loving relationship.”
“What makes us think Trump will accept a ruling in our favor when the murder of a Journalist is less important than oil and arms??”
The person’s profession doesn’t matter. Saudi Arabia executed American law on someone who had a busted taillight. Here’s American law at work:
Though to be fair, Canadian law isn’t really all that different.
http://isaacbrocksociety.ca/2015/03/31/burning-barns-down-is-not-wrong-because-it-is-illegal-it-is-illegal-because-it-is-wrong/
“For what it is worth, Trump will walk all over Canada if Canadians rights are reinstated with this court challenge. ”
The question raised by the court case concerns rights of dual citizens.
Much trickier, because the US-citizenship angle means the USG (in theory) has an interest in the outcome.
Whether this particular US administration cares a hill of beans is a different question; probably not, would be my guess. But the Canadian court’s ruling on the issue could be significant for US citizens in Canada and elsewhere.
A Canadian is a Canadian?
Or a US/CDN citizen is not exactly a Canadian?
An Australian is an Australian?
Or a US/AUS citizen is not exactly an Australian?
Etc.
Which is it to be?
The Swiss banking privacy scandal that led to FATCA, concerned abuse of the US tax system by US-residents. No citizenship issue.
The ability of a USC to file US tax returns from abroad has turned banking into a international citizens’ rights issue.
Say Country X created a new (voluntary) “dual citizenship” category to allow a person to keep both citizenships; while non-dual citizens would be required to abjure the other citizenship.
Would that be a solution to the FATCA problem?
US-tax-compliers could opt for DC status, while the US-born with no interest in US laws/politics could take up full citizenship.
“Canada pleads that because the plaintiffs and other US Persons have pre-existing obligations to report certain information to the IRS under US law, their privacy interest in that information is minimal…”
It would be good if Canada’s open, explicit statement of this position would lead to a consideration by the court on the question of whether all US-born Canadians have a pre-existing obligation to report Canadian bank accounts to the US.
All IGA countries need to state openly whether they do or do
not wish to restrict the rights of their US-born citizens.
It seems kind of disingenuous for Canada to take the position that US-born Canadian citizens have a pre-existing obligation to report Canadian bank accounts to the US, while refusing to assist the US in collecting US taxes and penalties from Canadian citizens.
Canada is willing to grab the info but not the money? Does that mean Canada (and other IGA1 countries) take the view that US-born Canadian citizens have a birth-doomed obligation to report their Canadian income to the US as US-taxable, but have no birth-doomed obligation to actually pay the resulting liability?
(Responding to Plaxy, 3 posts up): The basic problem is that the industrialized countries seem to be putting together some sort of international regime to combat tax fraud, but are not creating any international regime to decide conflicts over who is a citizen or tax citizen–each country gets to claim whoever it wants, and the USA is strong enough to enforce its claims globally. (In theory some other country might claim the whole world as tax citizens, or at least a largish diaspora, but would probably lack the political clout to enforce this.) Ideally the individual should be able to renounce or abandon a country’s citizenship without having to meet whatever burdensome requirements that country may demand. (Some countries such as Argentina don’t allow renunciation at all.)
Zla’od:
“…conflicts over who is a citizen or tax citizen–each country gets to claim whoever it wants, and the USA is strong enough to enforce its claims globally.”
It isn’t though (strong enough to enforce its claims that US-born residents of other countries have an obligation to report their non-US-taxable income to the US and accept a liability to pay tax to the US as if they were residents of the US rather than residents of their actual country of residence.
But I agree that no country wants to object because each country wants to keep the supposed right to decide its tax policy without international let or hindrance.
The Canadian court case isn’t challenging the peculiar US approach to taxation. It’s challenging Canada’s decision to report the Canadian accounts of (some, not all) Canadian citizens to a foreign country. AIUI
Zla’od:
“Ideally the individual should be able to renounce or abandon … [US] citizenship without having to meet whatever burdensome requirements … [the US] may demand. ”
Without a CLN, a US-born individual remains capable of filing US tax returns to diddle the US tax system. And because the US has a monopoly on the supply of CLNs, the US can set its own price.
However, it does seem to me that in theory a residence country should be able to fix this problem, by assigning a US-born citizen a “dual” or “non-dual” status or category of citizenship. The tax agency could then simply not forward the non-dual FATCA reports to America.
I said:
“Without a CLN, a US-born individual remains capable of filing US tax returns to diddle the US tax system.”
Means (US birthplace), motive (money-laundering, terrorist-financing, tax evasion), opportunity (residence outside the US): the classic three characteristics used to justify a search warrant.
Plaxy’s proposal for Canada to create exclusive and non-exclusive categories of Canadian citizenship would lead to choice-of-law issues similar to those surrounding renunciation of foreign citizenships in the Philippines, where a legal means of doing so exists, using a local notary, but is generally not recognized by other countries. That is, Canada might certify someone born in the USA as exclusively Canadian, but the USA would be under no obligation to recognize this (unless agreed to in some sort of treaty). This is because under international law, each state determines its own rules (no matter how expansive or eccentric) for granting nationality, but cannot demand that other states recognize those citizenships.
(It is not clear what differences in rights or duties between Plaxy’s two categories would be. Perhaps non-exclusive citizenship could not be passed on to children abroad? Just spit-balling here.)
Could one register as exclusively Canadian, but in fact retain multiple nationalities? It seems inevitable, in view of these ambiguities–unless the various countries of the world agree to common standards, and actively exchange information with one another. As it is, Japan generally forbids its citizens from possessing multiple nationalities (though this is selectively enforced), but has to qualify this principle in order to deal with other countries (like Argentina) which do not allow their citizens to renounce, or with those holding citizenships in de facto states not recognized by Japan (notably Taiwan). Germany inspects the passports of its citizens who are ethnic Turks, to determine whether they have traveled to Turkey without a visa (thus indicating furtive dual citizenship).
Not a “proposal” – merely speculating about possible solutions to a problem.
“Canada might certify someone born in the USA as exclusively Canadian, but the USA would be under no obligation to recognize this (unless agreed to in some sort of treaty).”
The IGA would be amended, yes; Canada would undertake to forward to the IRS the FATCA reports on US-born Canadians who chose “dual” rather than “non-dual” status.
“Could one register as exclusively Canadian, but in fact retain multiple nationalities?”
I’m speculating about a possible administrative category, not about loss of nationality. Affecting only the question of whether Canada does or does not treat its US-born citizen as a suspected tax criminal by sending information about his/her bank accounts to a foreign country.
I said:
“Affecting only the question of whether Canada does or does not treat its US-born citizen as a suspected tax criminal by sending information about his/her bank accounts to a foreign country.”
Under the present arrangements, all US-born Canadians are deemed by Canada to have an obligation to report their Canadian income to the IRS under penalty of perjury, unless they can afford to pay $2350 to buy their way out of the obligation created when they made the mistake of entering the world on the wrong side of the border.
I’m suggesting that a US-born Canadian ought to have a say in whether s/he does or does not accept that weird, unjust, one-sided “obligation.”
So the benefit to registering as “exclusively Canadian” would be, not having the government turn your information over to the IRS. What would be the benefit of registering as non-exclusive / dual?
And, would only those born in the US have to so register, or would everybody? If someone did not register, what would be their default category?
“What would be the benefit of registering as non-exclusive / dual?”
An administrative status such as “non-dual Canadian citizen” would only be meaningful for a US-born Canadian citizen who doesn’t want US citizenship privileges and obligations but is unable to renounce.
Or perhaps I should say, a US-born Canadian citizen who doesn’t want US citizenship privileges and obligations, full stop.
No need to waste $2350 on renouncing.
This is the position many of us were in for decades: US citizens, but not adversely affected by the citizenship in any way, and certainly not treated by our country of residence as criminal suspects.
Funny how quickly things come to be accepted.
The FATCA sweep is based on the US “John Doe summons” whereby every individual who could have committed a crime can be subpoenaed and forced to produce documents.
The FATCA sweep is too wide. It includes all US-born individuals with non-US bank accounts, on the theory that any US-born individual with a non-US bank account must be up to no good. It ought to include only US-residents with non-US bank accounts.
Canada can’t do anything about the FATCA law but should make sure Canadian citizens aren’t being treated as criminal suspects merely for having a Canadian bank account while having a US place of birth.
Zla’od:
“So the benefit to registering as “exclusively Canadian” would be, not having the government turn your information over to the IRS.”
If Canada stopped forwarding the bank information of Canadian citizens who don’t accept that their place of birth obliges them to report their Canadian income and bank accounts to the IRS, the IRS would no longer receive the information.
The Canadian Revenue Agency would still be receiving the information; that would be necessary, in order to let the banks comply with their US tax obligations (reporting US-born accountholders) while also complying with Canadian law.
Since the banks would still be reporting US-born accountholders to the Canadian tax agency, they would have no need to refuse to open an account for a US-born applicant with no CLN, or demand a W-9; self-certification as a “non-dual” Canadian citizen would satsisfy the auditors that the bank was not colluding with the applicant to commit US tax offences.
The issue of privacy could not be resolved by an administrative “fix” of the kind I’m speculating about. Only the discrimination issue, and that not entirely. (Only the US-born would have to jump through these hoops in order to open a bank account.)
Zla’od:
“So the benefit to registering as “exclusively Canadian” would be, not having the government turn your information over to the IRS. What would be the benefit of registering as non-exclusive / dual?”
To clarify: I’m not speculating about a registration scheme. It’s time and past time for the IGA1 governments to take responsibility for what they’re doing to their US-born citizens.
The government that signed the IGA is the government that’s sending its US-born citizens’ financial information to the IRS. For each US-born citizen the government needs to:
a) justify sending the citizen’s information to the IRS (by showing evidence of tax crime),
or
b) get consent (from those who wish to accept the obligation to file US tax returns),
or
c) stop sending the person’s information to the IRS.