THE INTENDED FOCUS OF THIS POST IS THE ALLIANCE FOR THE DEFENCE OF CANADIAN SOVEREIGNTY (ADCS) FATCA IGA LEGISLATION TRIAL IN CANADA HELD ON JANUARY 28, 2019.
The Government of Canada (who we are suing), together with some commenters on this site, strongly emphasize that Canadians should thank their lucky stars because they can easily get out of any FATCA-related “problems” (e.g., Canada won’t collect on behalf of the IRS at the present time, IRS at present time is not prosecuting all those turned over by FATCA, American interference is only hypothetical, “US citizens in Canada don’t seem to have much to fear from America or Canada, apart from the pointless automatic reporting. Canada may in fact be the last remaining country in the world where dual citizen status isn’t risky.” etc.). Why then did our Plaintiffs put themselves personally at financial risk with this lawsuit?
One reason for this trial is that Plaintiffs Gwen and Kazia want Canada’s FATCA IGA legislation, infringing on their privacy (Charter section 8) and equality (section 15) rights, declared unconstitutional by Canada’s Federal Court — and that a lawsuit is the way to achieve this specific objective.
Do privacy and equality rights matter? Should we care?
Plaintiffs also say in their court submission: “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.”
Is it important that Canada be a sovereign nation and not bargain away Charter rights because of a threat from a foreign bully? Does standing up to a foreign bully matter?
The CBC tells us that information on 600,000 accounts/year has been turned over to the US IRS during the past years. Even those who do not support Plaintiffs’ lawsuit would likely admit that at least “some” of the accountholders did not give consent for the turnover — meaning that the loss of Charter rights is not hypothetical.
Gwen and Kazia believe, and shouldn’t this really be obvious to all Canadians?, that the loss of our Charter rights, the loss of Canada’s sovereignty, and the loss of dignity of a subgroup of Canadian citizens, are more than, as some commenters argue, just “a relatively abstract sort of harm”.
Canada argues no harm caused by the FATCA IGA, but does acknowledge that if Charter rights are infringed, it had plenty of justification to do so — Canada had no choice but to comply with United States FATCA demands and could not have said “no”.
The lawsuit began during the time of the Harper Conservative government. We had hoped that when the Liberals came to power, there would be no need to continue the lawsuit, because of statements made on June 25, 2015 by Justin Trudeau to ADCS (“The Government of Canada has a responsibility to stand up for its citizens when foreign governments are encroaching on their rights. We believe that the [FATCA] deal reached between Canada and the U.S. is insufficient to protect Canadians.”) — but this was not to be, and the lawsuit continues even with the change in government.
When reading the diverse comments below on a variety of topics please try to consider what Plaintiffs’ Gwen and Kazia want to achieve, on behalf of all Canadians, with their lawsuit.
More discussion of the lawsuit below:
THANKS TO our brave Plaintiffs Gwen, Kazia, and Ginny, witnesses, supporters who never stopped giving, and lawyers Joe Arvay and Arden Beddoes— and thanks to the Federal Court for selecting this trial for the very first live webcast
Our Alliance for the Defence of Canadian Sovereignty’s FATCA IGA legislation lawsuit finally (almost five years after ADCS incorporation as a non-profit) came to a Charter-Constitutional trial in Canadian Federal Court. It was held in Vancouver British Columbia from January 28 – February 1, 2019. We expect a decision in June or so of this year.
See our ADCS legal counsel John Richardson interviewed by CBC on the FATCA trial. In 2016 and 2017 private information on a total of 600,000 private accounts were turned over by Canada to the U.S. IRS each year. Read the Court submissions.
SOME OF THE TRIAL EVENTS:
DAY FIVE: Canada argues that our Plaintiffs have no standing. Arvay responds that the fact that Plaintiffs are designated US persons and have banking accounts at risk should be enough. Also mentions the public interest in this case and that Plaintiffs are carrying the torch for all those designated as US persons in Canada.
Discussion of remedy: (Section 24 vs. 52 vs. Declaration). Arvay asks that primary remedy sought be section 52. Canadian Charter section 52 says: “The Constitution of Canada is the supreme law of Canada, and any law that is inconsistent with the provisions of the Constitution is, to the extent of the inconsistency, of no force or effect“.
If Plaintiffs Gwen and Kazia win, Arvay wants the remedy applied in six months, argues that Canada never keeps to one year remedy. Canada wants one year.
A lot of discussion on CRS (which came after the IGA) vs. the IGA. Arvay says that we are not in court to defend or challenge the CRS.
Canada says that banks put data into a T5 for millions of Canadians, so what’s the big deal with the IGA? Arvay responds by saying that if Canada tried to impose a requirement for IGA data in, for example, the massive cash-independent contractor economy, would that not require a warrant? Absolutely he says. Where is the warrant for the IGA?
Arvay: The IGA is a HUGE fishing expedition just because of a hunch. WE WOULD NOT ALLOW THIS FISHING EXPEDITION IN CANADA. IGA allows IRS to pursue those people under the rubric of the tax system.
Canada justifies the legality of the IGA on the basis that our Tax Treaty with US says each will assist the other in tax compliance. But Arvay responds that just because we have a treaty with a country — that does not make it charter-proof: A TREATY DOES NOT MAKE A CHARTER-FREE ZONE as Canada appears to suggest.
There was a discussion on whether the merits of US tax law impact on this case.
Arvay pointed out that the only reason the IGA is relevant to the US tax scheme is because the US has citizenship-based taxation (CBT). But it has also been argued that the Court cannot rule on the merits of a foreign tax. Yet Arvay says that isn’t Canada obliged to explain why it is important for CANADA to give effect to the US CBT law? No evidence, he says, that this purpose is important to Canada.
He gives an example: So what if the US amended its tax law so that there would be a special tax on all US persons whose parents were born in China (because the US is angry at China).
Would we then uphold a Canadian IGA law that helped in this human rights-violating US tax compliance? Canada would say Yes? Because we are not allowed to consider the merits of any sacrosanct US tax law — and we said in the treaty that we would help in US tax compliance? Canada can’t be asked to do this just because it is in the treaty, Canada has to justify that the law has a valid purpose says Arvay.Canada asserts that the IGA is better for Canadians than FATCA. Arvay counters in part by saying that with FATCA you get a choice to disclose or not disclose — puts the choice in the hands of the citizens, not the banks.
Canada asserts that it provides oversight when providing our banking info to the IRS. Arvay responds that CRA placing a stamp on the documents could not be oversight that provides any protection.
Arvay disagrees with Canada’s assertion that a section 1 onus to justify for Canada only applies to criminal case. Disagrees also with Canada’s narrow view on a section 15 criterion that the category of persons affected (US citizens plus others) is too broad.
Canada says that Parliament already provides protection to Canadians because Canada cannot collect on behalf of the US per the Tax treaty. Arvay responds that the IGA exposes a group of Canadians to enforcement and has denied this group the protection of Canadian sovereignty.
Arvay points out that Canada did not respond to his assertion on whether the IGA is arbitrary re: “accidental” “Americans”.
Canada argues that there is no problem using IGA obtained data for domestic purposes. Arvay argues that that is not a purpose of the IGA and that the type of data collected could not be used in Canada without a warrant.
Arvay mentions that yes it is true that Canada will not help collect FBAR penalties, but Canada has provided no evidence that IRS will not use IGA data for FBAR purposes.
Trial ends. Justice says that this is a complicated case.
DAY FOUR: Just so no one has any doubt whatsoever as to Canada’s number one reason for the IGA, Canada confirmed that, yes, as we all had expected, the primary objective of the IGA was to avoid those nasty complications of non-compliance. [If a really powerful country points a gun to your head, just comply.] Canada says that this primary important objective weighed against the low privacy concerns of the data seizure and the minimally intrusive way the info is collected make the IGA provisions reasonable.
Canada points out that some of our witnesses received a Chapter 3 and not a FATCA letter, but the point is that Canada does admit that accountholder information has in fact been turned over to IRS and that is not in dispute. [600,000 in 2016 and in 2017 per CBC]
Canada feels that IGA is not overly broad because you can’t check what you don’t know. The IGA is ok because everybody does it (e.g., CRS).
Regarding privacy Canada says that once account info has been turned over to CRA an expectation of privacy is lost and it’s ok for Canada to use the info for domestic purposes (not a purpose in the IGA).Even if there is an expectation of privacy that expectation is very low.
Regarding section 15 equality Canada says that the distinction between the Plaintiffs and other Canadians is not an acceptable enumerated factor — we say it is and the Justice said that she will think about it. For those who feel that we might re-negotiate a better deal with the bully, Canada helpfully told us that FATCA is what it is and that we can’t change that system.
Canada says that it does careful monitoring of the info sent to IRS because an officer puts a stamp on the document telling IRS to keep the contents secret.
The Charter should not protect those who flaunt US law says Canada. Canada ended today’s presentation with this: Plaintiffs are asking the Court to put the country at risk just so that someone can travel there — this is outrageous and NOT a privilege that the Charter can protect. In other words, we and the Plaintiffs are in it only for the travel.
DAY THREE: Canada explained in its scholarly economic assessment that there can only be MUCH DOOM AND GLOOM FOR CANADA if Plaintiffs Gwen and Kazia win the lawsuit. Canada says that if Gwen and Kazia win on behalf of all Canadians, and the Court rules that the FATCA IGA legislation violates our Charter rights, the U.S. would never re-negotiate FATCA because Canada brings NOTHING to the table.
DAY TWO: Our side explained why Canada’s FATCA IGA violates Charter sections 8 and 15 and why a section 1 override is not justified. Mr. Arvay read the powerful words of our witnesses who felt that they were abandoned by their country, treated as a second class citizen, betrayed by Canada — statements relevant to the section 15 violation.
DAY ONE: The Justice asked our lawyers generally: So what SHOULD Canada have done [instead of the IGA legislation?] Our lawyers answered in part: We expect Canada to stand up to the bully when our Constitutional rights are at stake…We don’t negotiate our Constitutional rights away for economic reasons…
[DISCLAIMER: The official record of the trial events is only the official transcript provided by the Court — and not the recollections made in the Post or in any comments below.]
Within the past 6 months I somewhere saw a list of all the FBAR prosecutions. It’s not a long list, and everyone on it was or had been a US resident (and even for the latter, prosecution only happened after returning to the US). So no, to date there have been no successful attempts to find and punish non-compliant non-residents for FBAR violations.
JapanT why be so negative? You could probably hide a ceramic blade or pointed instrument in your underwear too or even under your skin. When evil people put their minds to evil things …. things like CBT, FATCA, FBARs, Exploding Cigars, Shoe Bombers and Assassinations result. NONE of which are good things.
Bottom Line. The US has done and does do so much good that it is nothing less than criminal for that Goodwill to be squandered on evil such as CBT, FATCA, FBAR and suppressing / overriding the Constitutions of smaller countries insisting that those other countries do things to their populations that the US would never do to her own. It me very very sad to see a Good country’s power and influence so squandered alienating those good people around the world who would be her friends.
I’ve been offline for three weeks and missed the whole proceeding so am finally getting caught up. I’m up to the comments for Jan. 29 and will continue reading. My deepest thanks to our plaintiffs, our legal team, and everyone who helped bring this case to court. You all have my full support. I apologize for my absence.
I refer to prosecutions and the imposition of large fines. No evidence yet that they have used FATCA data to identify and penalize non-residents holding unreported accounts, though that should be technologically possible. Fines won’t be collectible so it’s not a risk for anyone who doesn’t need access to the US, or to keep a US passport.
“I suppose it may have just been because somebody somewhere was given the job of drawing up a limited list of what to let renouncers bring in with them. But it certainly does give off a rather sad atmosphere of insecurity and irrational fear.”
Well, I do agree that much of what they do is over the top and useless, especially when compared to lapses in security wide enough for the whole 7th Fleet to steam through.
My first passport was issued at Tokyo Embassy. They did it right there, left with it. Now for security reasons, all passports are made in the US and sent to you through a local parcel delivery service like DHL or UPS with markings clearly indicating that important identifying documents are inside. Yep, that be smart.
Personally I just think the US is extremely unlikely to prosecute any non-US-resident for not reporting their local account as foreign, unless the individual has voluntarily filed. I just don’t think the Treasury would take the risk of letting the insane pretence get thrashed out in court. They’d risk losing that FBAR fear factor that helps to persuade (some) expats to comply, or comply-to-renounce.
“JapanT why be so negative?”
Your last paragraph answers this question.
Yes, motivated people will find a way. Searching and disallowing certain things to be carried in is designed to be not easy for them. Often over the top, but often not.
“I refer to prosecutions and the imposition of large fines. No evidence yet that they have used FATCA data to identify and penalize non-residents holding unreported accounts, though that should be technologically possible. Fines won’t be collectible so it’s not a risk for anyone who doesn’t need access to the US, or to keep a US passport.”
Still early. Letters sent out a year ago. They are slow.
“Personally I just think the US is extremely unlikely to prosecute any non-US-resident for not reporting their local account as foreign, unless the individual has voluntarily filed. I just don’t think the Treasury would take the risk of letting the insane pretence get thrashed out in court. They’d risk losing that FBAR fear factor that helps to persuade (some) expats to comply, or comply-to-renounce.”
Well, we do know that they do in fact pull such tricks. But, one must be rich to afford the FBAR fine and then pay for the court battle. All the IRS has to do is assess fines to those who won’t have enough money left for a court challenge. Unless it happen to who or some one close, how would one know this is going on?
If you mean passport letters, that’s something else entirely.
Ah, you’re right. But it can still serve to show that while it takes time for their efforts to be publically known, the are still working behind the scenes.
Here we go again
“All the IRS has to do is assess fines to those who won’t have enough money left for a court challenge. Unless it happen to who or some one close, how would one know this is going on?”
That’s what I said – USCs living outside the US who file incorrectly (not ticking the Schedule B box, not filing FBARs) may have been assessed large FBAR penalties and quietly paid up.
So it may be the case that the IRS does pursue filing expats for FBAR fines. But that’s a very different kettle of fish from being able to assess and collect FBAR penalties from expats who don’t file US tax returns and don’t care about the citizenship or the passport.
@Plaxy.
maz57:
“The US claims jurisdiction over US/Canadian duals in Canada”
The US has jurisdiction in America, not in Canada. US law deems US citizens to be subject to US law wherever they reside, but the US doesn’t have jurisdiction to enforce the pretence in Canada (or other countries).
“and now with the IGA bank information they could even try to assess some tax.”
The US can tax US-source income received by Canadian residents; not Canada-source income received by Canadian residents
I wholeheartedly agree with your comments which was the point I was trying to make. I guess my wording was unclear. That’s why I added the “so what”. The US claims all sorts of things. Fortunately for the rest of us their jurisdiction ends at the border. Based on the information now being handed over via the IGA, the IRS could (theoretically) try to assess tax on Canadian source income, but so far I haven’t heard of that actually happening. The IRS knows full well their power is extremely limited.
Its the fearmongering compliance outfits that are in the business of scaring folks that are the worst threat. (So much so that it wouldn’t surprise me that one day we find out that they get a kickback from the IRS for every lamb they send for slaughter. How else can you explain their despicable behavior?)
maz57 – Sorry I mistook your meaning. Yes, the fearmongering taxsters have got a lot to answer for. I suspect some of their eagerness to bend over backwards trying to scare innocent duals into the poisonous clutches of the IRS, may be because they themselves really are owned body and soul by the IRS and are scared stiff of them. 🙂
Yes, they have made a pact with the devil, haven’t they? Their livelihood absolutely depends on doing the IRS’ bidding.
Our job is to point out the duplicity and make sure that people know they can safely ignore most of the taxster’s (like that word, by the way) misinformation.
A very confusing situation. Especially for those USCs for whom neither renouncing the citizenship nor ignoring CBT is a practical option. A lot of resentment is apparent these days, among compliant USCs I see posting in various places. The FATCA outrage, the transition tax, the various campaigns to change US tax law, the court challenges, the EU Parliament study – some of the people who once took CBT for granted have gradually come to understand what a real stinker it is, and how unfairly America is treating them.
“So it may be the case that the IRS does pursue filing expats for FBAR fines. But that’s a very different kettle of fish from being able to assess and collect FBAR penalties from expats who don’t file US tax returns and don’t care about the citizenship or the passport.”
FATCA lets the IRS know funds that they say should be reported exist. If they can’t get it through FBAR, there are always different routes. There will always be fines they can hit people with for not filing. Close to impossible before FATCA but not now, for obvious reasons.
I doubt that citizenship has any bearing on what the IRS decides. Do they have any way to even know if any given individual is a dual. If they find out, I doubt they have any way to do anything with that info, is there a data field in the software that allows them to input that data point? And, if they do know, I doubt they care. As far as they are concerned, dual US citizens are US citizens.
Sure, they may not be able to get any money unless you deliver yourself to them, but all the information shared with them is out in the open for any and all to see and use however they wish.
“ (So much so that it wouldn’t surprise me that one day we find out that they get a kickback from the IRS for every lamb they send for slaughter. How else can you explain their despicable behavior?”
Such a program does in fact exist for “whistleblowers”. Any ordinary citizen who rats out a US taxpayer for tax or filing crimes gets a percentage of the haul. Not sure if thax professiinals can aplly for this, but such a program does exist.
@Japan T. There was a case some years ago in which an employee of a large Swiss bank knew that his bank was aiding wealthy US residents to evade US tax. He himself was implicated in the subterfuge so he was not blameless but he turned over a long list of the bank’s clients to the IRS. As he was based in the US, they charged him and sent him to jail but they also paid him 104 million dollars for his whistleblowing efforts. He was financially set up for life after serving his 40 month sentence. Google Bradley Birkenfeld. This was about 10 years ago and marked the beginning of the end for Swiss bank secrecy.
“The US can tax US-source income received by Canadian residents; not Canada-source income received by Canadian residents”
I suppose it’s often hard for the IRS to collect taxes it imposes on Canada-source income received by Canadian residents, but they can do it when the PAYER collects withholding. When the Canadian payer has US assets, the IRS has gentle methods of persuading the Canadian payer to voluntarily do a good deed for the IRS. If the IRS is more gentle than the Van deMark case, we might need another lawsuit.
“the IRS could (theoretically) try to assess tax on Canadian source income”
Assessing is easier than collecting. They don’t need help from anyone.
Here are three cases where the IRS issued Notices of Deficiency and US Tax Court upheld them. I don’t know what happened after those cases. If the victims didn’t pay then the IRS would assess them. But more importantly, if the victims had ignored the Notices of Deficiency, the IRS could go ahead and assess them and the victims wouldn’t be able to fight the assessements in US Tax Court.
https://scholar.google.co.jp/scholar_case?case=1963084713738187466&q=%22self+employment%22+%22canada%22&hl=en&as_sdt=4,192
https://scholar.google.co.jp/scholar_case?case=10859402887360171019&q=%22self+employment%22+%22canada%22&hl=en&as_sdt=4,192
https://scholar.google.co.jp/scholar_case?case=7072185661161582824&q=%22self+employment%22+%22canada%22&hl=en&as_sdt=4,192
“I doubt that citizenship has any bearing on what the IRS decides. ”
Citizenship has a bearing on what the citizen decides.
A US-born citizen of a country other than America is much more likely to be able and willing to decide to have nothing to do with American finance or American tax-filing or the IRS.
“Assessing is easier than collecting. They don’t need help from anyone.”
Is there a reported case in which the IRS tried and was able to assess a tax liability on a non-resident US citizen without help from the citizen?
“Is there a reported case in which the IRS tried and was able to assess a tax liability on a non-resident US citizen without help from the citizen?”
There’s a huge difference between “tried” and “was able”. Again, they can almost always make an assessment by filing their own form in their own office somewhere, without help from anyone. The important question is whether they ever tried to do it to a non-filing non-resident.
(You didn’t ask about collecting, but again just to clarify, collecting is completely different from assessing.)