UPDATE: FATCA IGA litigation in Canada Federal Court: The guts of our Plaintiffs’ (Gwen and Kazia) arguments and those of the Government we oppose (for simplicity, “Canada”) can now be found in four court documents (that our supporters paid for) submitted between October 3 and December 13, 2018 (see below for some excerpts). The Court submissions can be found on our ADCS website.
The trial, which fleshes out the written arguments in orals in Federal Court, has been held the week of January 28, 2019 in Vancouver.
OUR TRIAL WOULD NOT HAVE HAPPENED WITHOUT THE GENEROUS SUPPORT OF BROCKERS. Somehow you found the monies to pay for this trial.
THE FEDERAL COURT DOCUMENTS THAT OUR SUPPORTERS PAID FOR:
1. October 3, 2018 Plaintiffs’ Complaint. We argue in part that Canada’s FATCA IGA legislation violates Sections 7, 8, and 15, of our Charter of Rights and Freedoms and the sovereignty of our country. Includes: ” …the principle of nonintervention between states is a cornerstone of the international order and intrinsically connected to state sovereignty; it is undoubtedly considered by all Canadians to be fundamental to their notion of justice that Canada will not expose them to enforcement of another state’s laws; and it is predictable and easily applied – simply, Canada may not allow other state to enforce their laws on individuals residing in Canada.”
2. November 21, 2018 Canada’s response to Plaintiffs’ Complaint. Many arguments including: Canada argues that it responded wisely to a threat from a bully:“…severe consequences to the Canadian financial sector, its customers and investors, and to the Canadian economy as a whole if Canadian financial institutions were unable or unwilling to comply with FATCA.” “…the plaintiffs have no standing..” because their accounts were not turned over, etc. “The CRS has been adopted by over 100 countries, including Canada…” “While it is acknowledged that the Impugned Provisions cause the seizure of information for the purposes of s.8, the plaintiffs do not have an objectively reasonable expectation of privacy in that information.” “The plaintiffs argue for the recognition of a novel principle of fundamental justice “that Canada will not deny its citizens the protection of Canadian sovereignty”. This proposed principle does not meet the requirements of a principle of fundamental justice as outlined by the Supreme Court of Canada.” “Avoiding the possibility of such catastrophic effects as a decline in GDP, labour income, employment, a depreciation of the Canadian dollar and a lowering of the standard of living of Canadians, are certainly sufficiently pressing and substantial to justify any minimal limitation on rights which may be found to a be result of the Impugned Provisions.”
3. December 7, 2018 Plaintiff’s response to Canada’s motion to strike out some testimony of our witnesses. Includes: “Canada seeks to strike the entirety of the Second Nightingale Affidavit based on a lack of relevance. The Second Nightingale Affidavit concerns the Exit Tax. As explained in the plaintiffs’ Memorandum of Fact and Law, the Exit Tax is relevant context in this constitutional case because it constitutes part of the burden faced by some individuals of avoiding exposure to the Impugned Provisions.” “The out of court statements referred to by Ms. Tapanila to which Canada objects are not adduced for the truth of their contents, but rather for the fact that they were made. The plaintiffs do not rely on the legal advice lay witnesses were given for the truth of its contents. Rather, the plaintiffs rely on the fact that these witnesses sought and paid for legal advice, in many cases from multiple lawyers and at significant expense. This evidence establishes that it can be onerous and costly for an individual to determine whether and how they may be affected by the Impugned Provisions – and if they are affected, whether and how they may avoid this by changing their immigration status under US law – as referred to in the plaintiffs’ Memorandum of Fact and Law, at paragraph 19. The specific legal opinions lay witnesses received are not relevant to this point.” [I will not provide a link to this short submission, which includes the names of witnesses other than that of Carol Tapanila, whose name is already in the public domain.]
4. December 13, 2018 Plaintiffs’ reply record for the Summary Trial. Includes: “This is the first time Canada has raised standing as an issue. It does not plead that the plaintiffs lack standing in its Amended Statement of Defence. Canada’s assertion that the plaintiffs’ rights have not been affected by the Impugned Provisions is incorrect. It is undisputed that the plaintiffs bear US Person Indicia, since they both have an unambiguous US Place of Birth. As a result, any Low Value Accounts they own now or in the future may be reported and shared pursuant to the Impugned Provisions. For Lower Value Accounts or High Value Accounts that they own now or in the future,the relevant FIs are required pursuant to the Impugned Provisions to obtain or review the plaintiffs’ Proof of Loss of US Citizenship.” “Further, or in the alternative, the plaintiffs have public interest standing to challenge the Impugned Provisions…Relatedly, in an earlier summary trial in this proceeding, this Court declined to grant costs given “the public interest involved in clarifying the scope of novel provisions affecting hundreds of thousands of Canadian citizens.” etc. “Canada relies on the expert report of Matthias Oschinski for the proposition that if all of Canada’s big banks did not comply with FATCA, and the Impugned Provisions were not implemented, Canada would face significant negative economic impacts. In fact, Mr. Oschinski agreed that the severity of those impacts was subject to a “great deal of uncertainty” More importantly…” “This Court has already observed that the Common Reporting Standard is different from FATCA in “significant ways”. Comparing the CRS and the Impugned Provisions – as Canada does in various parts of its argument – does not aid in the resolution of this case.”
“…the record before the court actually does not establish that the plaintiffs have US tax reporting obligations [!]. There is no expert evidence before the court that considers the plaintiffs’ immigration and citizenship status under US law. The plaintiffs are affected by the Impugned Provisions because they bear US Person Indicia, not because they are US citizens. This is important: it is the presence or absence of US Person Indicia – as defined in the Impugned Provisions – that determines whether an individual is affected by the Impugned Provisions, not their citizenship status under US law. As noted above, Canada’s submission unreasonably assumes that the two are perfectly correlated.” “Canada states that its primary purpose in enacting the Impugned Provisions was to “avoid the potentially catastrophic impacts of FATCA on Canadian financial institutions, their customers and the Canadian economy.” It says its secondary purposes were to (a) lessen “the burden of the direct application of FATCA on Canadian financial institutions and their customers” and (b) “obtaining additional automatic exchange of information from the US to Canada for Canadian taxation purposes.” Assuming that the first of the secondary purpose is different than the alleged primary purpose, we do not accept that lessening of an undefined “burden” would be a legitimate objective for purpose of s. 8 or s. 1. As to Canada’s secondary purpose (b), while it is supported by one paragraph of the preamble to the IGA, it is undermined by all other relevant evidence and the effect of the law…Third, and in any event, Canada’s articulation of its “primary purpose” is too general to be accepted. A purpose that is articulated in too general terms will provide no meaningful check on the means employed to achieve it. Not only is the threat of economic harm Canada refers to amorphous and highly uncertain, it is so general that it could justify any rights infringement arguably motivated by such a threat from a foreign state…Canada effectively maintains that it enacted the Impugned Provisions under duress from a foreign state. The Court should be very slow to accept this as a justification for infringements of the Charter. Canada is expected to defend the constitutional rights and freedoms of its citizens and not bargain them away or capitulate to threats from a foreign bully state. The notion that a foreign state could indirectly cause the violation of a Charter right in circumstances where Canada could not do so directly simply cannot be accepted. This is a deeply illiberal proposition and it would undermine the principle of the rule of law which explicitly animates the Charter. ”
“Further, even if a desire to avoid financial punishment by a foreign state is accepted as the actual objective underlying the Impugned Provisions, and is considered a valid basis to violate a Charter right, there is significant uncertainty surrounding (a) whether the United States actually would have inflicted that punishment if Canada did not abide, or would do so now if the Impugned Provisions were declared of no force or effect, and (b) the severity of the financial consequences if they were to materialize.” “Canada does not deny that the CRA will use Accountholder Information obtained pursuant to the Impugned Provisions for domestic tax compliance work, nor does it refute the plaintiffs’ contention that such use is unrelated to the objectives of the Impugned Provisions. However, Canada relies on Jarvis for the proposition that “once information is validly gathered by the CRA any reasonable expectation of privacy in the information is lost.” On this basis, it suggests that the CRA’s use of this information is not unreasonable. Jarvis cannot be applied to the present case in the manner suggested by Canada. First…”
“In asserting that the Impugned Provisions are minimally impairing, Canada states that it is not the court’s role to speculate about whether Canada could have achieved a better deal through negotiations with the United States. We disagree. It is Canada’s onus to prove that the Impugned Provisions are minimally impairing and if its claim is that it had no choice because of US demands then it must prove that by appropriate evidence.”
“Finally, the plaintiffs do not assert, as Canada suggests, a right “to avoid the consequences of choosing to violate US law.” The plaintiffs claim their Charter rights, and they claim that they have been breached by Canadian law for the reasons set out above.”
I guess there’s nothing to prohibit the CRA from using whatever information it receives from the treaty for whatever tax enforcement purposes it deems fit to use it for.
There certainly ought to be a bar to private information being accessed by a tax agency on the basis of birthplace alone.
It’s quite wrong for the IGA1 countries to be abusing the mutual exchange of information article to legalise searching the private information of people who haven’t given any cause for suspicion of wrongdoing.
Before this fishing expedion was put in place, information had to be requested from the other country on a named basis. Non-tax-evaders (even if born in America) had privacy rights. Now the local tax agency can help themselves to knowledge of every purchase, every transaction, if the accountholder has US indicia.
Nononymous: Here is a link to a 2013 complaint about a firm’s KYC questions:
https://www.priv.gc.ca/en/opc-actions-and-decisions/investigations/investigations-into-businesses/2014/pipeda-2014-012/
Though citizenship isn’t mentioned as one of the questions asked by the complained-about firm, maybe your provider added the citizenship question because of the suitability issue. Would a compliant dual with a RRSP get taxed on it under the PFIC rules? That might make it an unsuitable product for a compliant dual? In the same way SIPPs and stocks-and-shares ISAs are considered unsuitable products to sell to a dual in the UK (or so I’ve read).
“The firm’s Branch Manager informed the complainant that the information was required in order for the firm to comply with the Investment Industry Regulatory Organization of Canada (“IIROC”) KYC and Suitability requirements. Pursuant to these requirements, investment firms are required to collect sufficient information regarding a client and determine the suitability of each proposed transaction. By understanding details regarding risk tolerance, assets, liabilities and household sources of income, a firm can better assess the suitability of proposed transactions for clients.”
Interesting.
@plaxy
Point 1 – “Now the local tax agency can help themselves to knowledge of every purchase, every transaction, if the accountholder has US indicia.” According to the IGA, banks only send year-end balance plus interest/dividend income (which the CRA would have already). I don’t believe that under FATCA banks are dumping the entire transaction record, though we really have no idea what they’re doing. To the larger point though, I expect that it is somewhere written that if the IRS requests information about a Canadian resident, under the pre-FATCA tax treaty provisions, then the CRA is allowed to have a look themselves at the data they’ve collected on behalf of the US. In which case what changed isn’t the principle but rather collection against an entire category of persons rather than named individuals.
Point 2 – Interesting. I never knew why they asked about citizenship. I assume there are mutual funds in that RRSP (I don’t pay much attention) so it could be “suitability” as you describe. But the fact that it happened in 2013 suggests it was early days of FATCA compliance, and I pushed back with an argument that RRSPs are non-reportable so the bank has no business asking me, and I would refuse to confirm or deny unless they gave assurances that citizenship information would never leave the bank and RRSP accounts would never be reported – assurances they were not willing to provide. It ended when I capitulated and said I’d sign a W8, and they mysteriously backed down and were happy with an e-mail answer to a general question about citizenship in which I stated only that I was Canadian (followed up by signing a form on which the US citizen box was not checked).
Nononymous:
“I expect that it is somewhere written that if the IRS requests information about a Canadian resident, under the pre-FATCA tax treaty provisions, then the CRA is allowed to have a look themselves at the data they’ve collected on behalf of the US. In which case what changed isn’t the principle but rather collection against an entire category of persons rather than named individuals.”
That’s exactly the point. That’s what’s wrong, as Canada admits. Only Canada says it’s ok because it’s unreasonable for people born in America to expect to have privacy rights!
“While it is acknowledged that the Impugned Provisions cause the seizure of information for the purposes of s.8, the plaintiffs do not have an objectively reasonable expectation of privacy in that information.”
“It ended when I capitulated and said I’d sign a W8, and they mysteriously backed down and were happy with an e-mail answer to a general question about citizenship in which I stated only that I was Canadian (followed up by signing a form on which the US citizen box was not checked).”
Ah yes, they couldn’t let you sign a W-8, I imagine! So yes, it does sound like they fell back on don’t ask, don’t tell.
“8. Everyone has the right to be secure against unreasonable search or seizure.”
As long as they weren’t born in America.
https://www.justice.gc.ca/eng/csj-sjc/rfc-dlc/ccrf-ccdl/check/art8.html
@Embee, I forgot to add this from the public record as well;
http://apps.fct-cf.gc.ca/pq/IndexingQueries/infp_RE_info_e.php?court_no=A-407-15&select_court=All
For those readers who have not been here long enough to have read all the twists and turns since the inception of IBS, there was so much more hard work (research, writing, fundraising, organizing, planning, etc.) done by those at IBS, Maple Sandbox https://www.maplesandbox.ca/about-maple-sandbox/ , USCitizenAbroad, and other blogs, and then at ADCS even before the actual inception of the lawsuit.
This ADCS lawsuit means a great deal to us in Canada, and also to those watching and supporting from outside Canada, just as we watch what is happening elsewhere – ex. in France https://www.facebook.com/Association.Americains.Accidentels/?ref=py_c .
Questions have just struck me re elements of the lawsuit that might resonate past our immediate issues. ex.:
Re the claim by the defendants that there is no jurisdictional conflict/bar re the application of the FATCA IGA by the federal government to provincially regulated credit unions. I am wondering what the credit unions https://www.ccua.com/regulatory_compliance said about that question? They did a fair bit of lobbying at the time of the IGA, and perhaps afterwards. Did they seek a legal opinion at the time? Did they believe that it wasn’t worth fighting in court given the cost and delays involved? Did they decide to just bite the bullet and go along with it?
What would a win on that point (federal override of provincially regulated CRs) via the ADCS lawsuit mean for credit unions? Would it potentially create a precedent for arguments on future issues arising from conflicts of federal vs. provincial regulation of local credit unions? If so, are credit union associations watching to see whether their provincially regulated status would be eroded by a federal government win on that point?
Just for hypothetical amusement, I sure wish that the rest of the world spoke to the USA as the Prime Minister of the UK speaks to the US president in this clip from the movie from 2003
https://www.youtube.com/watch?v=5mc2IWZOWXA
It put a smile on my face for sure.
Somehow, the movie name was truncated. It’s from “Love Actually” 2003.
Interesting to recall that the Charter violations were explained to Mr Shoom in detail and in very accessible language, in the letter written by Prof. Peter Hogg back in 2012 (http://elizabethmaymp.ca/wp-content/uploads/peter_hogg_fatca.pdf), and subsequently reported on this website at http://isaacbrocksociety.ca/2013/03/12/the-best-news-weve-heard-since-this-nightmare-began/comment-page-1/#comments
I wonder if Shoom replied.
Perhaps (speculating):
– the Canadian government came up with the barebones idea of using the treaty article as the legal basis;
– then the US and the G5 fleshed it out into the Model 1 IGA;
– and that’s what the US eventually put forward for other countries including Canada to sign;
– and the Canadian government then put out a trailer to test reactions (Nov 8 2012);
– and that’s when Prof. Hogg wrote to Shoom.
END GAME – epiphany.
IMO, when this case looks bad for the government – going to lose – then the Canadian government is likely to consult one of the oracles of the big accounting/consulting firms about options.
I believe what will likely comeback with will be 1) “the law is the law, as in U.S. law; 2) conservative, 3) A rehash of the IGA is less costly then without, 4) at risk is nothing less than the bankrupting of the Canadian banking system.
IMO, it would behoove ADCS to prepare for this and plot, at some point, an alternative course of action for the Canadian Government.
This is what I am thinking, at risk of jumping way ahead, and assuming the FATCA IGA gets ruled in violation of the Canadian Charter:
1) Reaffirmation of the Canadian Charter of Rights, including prohibition of discrimination based on national origin.
2) Statement as to the finding by the Canadian Courts, that the FATCA IGA violates The Charter.
3) Statement that the US has violated promises of FATCA data reciprocation, and that many years after the IGA was signed, US banks are not required to ferret through their account holder lists and seek and provide FATCA IGA data for Canadian account holders in the U.S.
4) That Canada is a sovereign nation with sovereign right to exempt its residents and citizens from attempts of other nations to impose extraterritorial jurisdiction on Canada.
5) That based on 1-4 above that Canada can no longer abide by the FATCA IGA requirements on Canadian banks /CRA. Canada will cease providing such information to the US. And that annulment of the IGA shall be submitted to Parliament.
ELSE, the Canadian Government may feel backed into a corner with advice from big compliance firms.
The above provides a way out.
JC, thanks for the end game thoughts, but the practical focus for ADCS right now is not on future end game options after a win (personally, my end game remains the end of FATCA worldwide) but has to be on raising sufficient money for legal costs for the appeal (no matter who wins).
We need to focus on paying legal costs to keep our court case going past the Federal Court trial stage and into Canada’s Court of Appeal.
Twenty-six days to the Vancouver trial.
@Stephen I was then thinking when best to restart fund raising. When we are back in court may be an opportunity. And, (say we win the next round), the day the government appeals. Elizabeth Thompson likes to write articles about US double taxation – she might mention the fund raising in one of her articles.
Here is one of her articles: https://www.cbc.ca/news/politics/transition-tax-trump-corporations-1.4639020 . She should be part of a media engagement plan (you are probably way ahead on this).
Elizabeth Thompson has included pictures of Trump with her articles. No doubt this is engineered to attract clicks and it has worked judging by the number of comments on the articles mentioning Trump.
Perhaps – if that is the way she wishes to go – we might help craft her message. How about:
Trump Fails Party Platform to Repeal FATCA, Forcing Canadian Lawsuit.
Except the lawsuit long predates Trump.
@nononymous, yes true. Yet if FATCA were repealed in the U.S. then that would have ended the data transfer, presumably. So that suggested headline is not a far stretch.
The best opportunity for US initiated legislative reversal of FATCA was when the Republicans held both houses. Now it appears up to “foreign” governments to prompt reversal.
JC, the timing of fund raising for the appeal is tricky, especially given the very short appeal timelines, but ADCS still plans to wait until we have an actual Federal Court decision — sometime mid-2019 or so — before asking for monies. But we might ask supporters how much they might be willing to donate for the appeal, right after the trial in January.
Nononymous makes a good point. In one of our Federal Court submissions our lawyers used the provocative term “foreign bully state” to (correctly) describe the behaviour of the United States in its treatment of Canada over imposition of the FATCA law — made under promise of financial ruin for non-compliance. FATCA however came about from the “kind-hearted” Obama administration, and not because of Mr. Trump.
Trump Fails Party Platform to Repeal FATCA, Forcing Appeal in Canadian Lawsuit.
JC:
“…if FATCA were repealed in the U.S. then that would have ended the data transfer, presumably.”
If FATCA were to be repealed by the US, that would presumably end the transfer of data from the tax agencies of IGA1 countries to the IRS but (if I understand correctly), it wouldn’t necessarily end the transfer of US-born accountholders’ data from the banks to the lical tax agency, in CRS “Wider Approach” countries.
The problem is the OECD standard’s acceptance of the US designation of USCs as forever tax-resident in the US. Thus causing domestic accounts to be treated as cross-border accounts when owned by a US citizen.
@plaxy, and the FATCA inquisition is embedded into the CRS form – so then ending the reporting would be on the CRA end initially.
It could be on the US end, but not through repeal of FATCA. Only if the US changed its definition of who is tax-resident in the US.
Or if there was a standard definition of tax-residence, and a standard process through which the taxpayer could officially start/end tax-residence in a country rather than having it inflicted on them by the country that wants to tax them.
More from court submissions on the question of low value accounts being reported or not reported. Canada relies on expert who asserts that low value accounts are not reportable.
Plaintiffs argue in part:
From: http://www.adcs-adsc.ca/CourtSubmissions.html
“More from court submissions on the question of low value accounts being reported or not reported. Canada relies on expert who asserts that low value accounts are not reportable.”
You have to point out to the judge that Canada refused to answer the question.
How many people are murdered in a year in Canada? Look at police records. How many people are murderable in a year in Canada? Look at census records.