Article from U.S. Tax Lawyer Stanley C. Ruchelman and Toronto lawyer Sunita Doobay about the @ADCSovereignty #FATCA Canada lawsuit. The article is a good argument for donating to the appeal – this issue needs to go to the Supreme Court of Canada! https://t.co/BDHY0vorwm pic.twitter.com/e4M06HIPmY
— U.S. Citizen Abroad (@USCitizenAbroad) December 3, 2019
All I can say is that if you read the article referenced in the above tweet you will see why the FATCA lawsuits are important. An excerpt includes:
Deegan v. Canada
A similar conclusion was reached in Deegan v. Canada.18 The provisions of the Implementation Act and Sections 263 to 269 of the Income Tax Act, R.S.C. 1985 (5th Supp.), were challenged by individuals who were accidental Americans.
The plaintiffs alleged that those provisions cause Canada to act as an intermediary between Canadian financial institutions and the I.R.S. Those institutions are required to provide C.R.A. with certain information concerning financial accounts belonging to customers whose account information suggests that they may be U.S. persons. C.R.A. then provides that information to the I.R.S. As a result, the plaintiffs alleged that the provisions of the Implementation Act violate the Canadian Constitution,19 asserting that they constitute an unreasonable seizure of financial information belonging to U.S. persons in Canada. The plaintiffs also alleged that the information exchange under the Implementation Act violated other provisions of the Canadian Constitution because they singled out individuals based on citizenship or national or ethnic origin.20 Finally, the plaintiffs alleged that the violations do not constitute reasonable limitations on the privacy and equality rights of affected individuals.21
The Federal Court disagreed with the allegations and held that the disputed provisions of the Implementation Act are not unreasonable and do not violate the Canadian Constitution.
The information that is obtained by C.R.A. from Canadian financial institutions is not an unreasonable search and seizure. Departing from the approach taken under the revenue rule, the Federal Court determined that an expectation of privacy is appropriate principally when a Canadian statute is criminal or quasi-criminal in nature. Reporting of tax information by Canadian financial institutions to C.R.A., and ultimately to the I.R.S., does not fit into that protected framework. Tax is essentially a regulatory statute, and the information relates to the manner in which income tax is calculated and collected. Hence, a lesser expectation of privacy exists.
The Federal Court also disagreed with the plaintiff’s assertion that the information is not of a kind that is regularly obtained under the Income Tax Act and therefore should not be delivered to C.R.A. Following the holding in Hillis v. Canada, the banking information is foreseeably relevant to U.S. tax compliance and can be obtained by C.R.A. pursuant to a request from the I.R.S. under Article XXVII of the Treaty.
To the extent that the disputed provisions draw a distinction based on national origin and citizenship, they are not discriminatory. In reaching its decisions, the Federal Court took into account the detailed negotiations that were carried on by the Canadian government, attempting to negotiate a carve-out for Canada. When the Canadian government realized that a carve-out was not possible, it realized that entering into an I.G.A. was the only way to avoid a potentially devastating effect on the Canadian financial sector.
The plaintiffs alleged that the purpose of the Implementation Act was to assist the U.S. government in implementing F.A.T.C.A. and finding U.S. tax evaders and cheats, a purpose that cannot be described as pressing and substantial for the Canadian government or Canadian residents. However, at the same time that Canada was negotiating its I.G.A. with the U.S. government, the O.E.C.D. was involved in developing and implementing a common standard for the automatic multilateral exchange of financial account information along the lines of the I.G.A. Hence, the Implementation Act could not be said to be out of line with global expectations of financial privacy.
Finally, the argument that the Implementation Agreement resulted in discrimination based on citizenship and national origin were misplaced. The Federal Court held that a classification based on national origin is a form of discrimination only where it perpetuates ongoing disadvantages or prejudice. That is not the case where compliance with laws of a country of citizenship are in issue.
The Charter does not require Canada to assist persons resident in this country in avoiding their obligations under duly-enacted laws of another democratic state, nor does it require this country to shelter those living in Canada from the reach of foreign laws. Indeed, as was noted earlier, insulating persons resident in this country from their obligations under duly-enacted laws of another democratic state is not a value that section 15 of the Charter was designed to foster.
Overall, the arguments raised by the plaintiffs paled in comparison to benefits that are derived by the banking industry in Canada. The I.G.A. was necessary for Canadian financial institutions to be deemed compliant with the requirements of F.A.T.C.A. and simplified the related data gathering obligations. In sum, the Implementation Act allowed Canadian financial institutions to avoid 30% withholding taxes on the receipt of capital payments on loans to U.S. residents and simplified the information gathering that would otherwise have been required under F.A.T.C.A.
(The author appears to imagine the the purpose of the Charter of Rights is to protect the banks.)
Notice that the “U.S. Centric” tone to the article which underscores why the FATCA lawsuits (both here and in the UK) must continue!
It requires a knowledge of special kind of language in this article to understand it. That is the special language used to circumnavigate human rights.
And all the government has to do is sit there and watch us all run out of money to fight it. They know they have endless taxpayer monies to fight this all the way and we do not. Someone please tell me how this is fair in any way to Canadians. I have told groups of new Canadians that they have aquired “second class Canadian citizenship” and directed them to this lawsuit to show the Canadian government’s true colours. They will soon learn that Canada considers them all second class. This government is out of control and the entire country is split up. There are no checks and balances for human rights in Canada at all. It is every man/woman for themselves against the government. This proves it!
A very sad state of affairs.
I had expected better of a Canadian Govt. Any Canadian Govt. I have been proven wrong.
I had expected better of the Canadian Court System (despite unfairness that I have witnessed in decades past in other matters). I feel let down by what we have witnessed.
I was blocked from reading the full article at Mondaq, but I’m just as glad. The part that USCitizenAbroad highlighted was more than ample. After wading through all the fancy language what do we have anyway?: simply the message that we’ve all been thrown under the bus “for the greater good.” The only “greater good” that I know or care about is freedom and equality for EVERYONE, not just those to whom it is deemed expedient to offer them.
“Hence, the Implementation Act could not be said to be out of line with global expectations of financial privacy.”
So, if rounding up people for extermination is one again international norms….
“The Federal Court held that a classification based on national origin is a form of discrimination only where it perpetuates ongoing disadvantages or prejudice. That is not the case where compliance with laws of a country of citizenship are in issue.”
And FATCA does not!? How does it not?
“The Charter does not require Canada to assist persons resident in this country in avoiding their obligations under duly-enacted laws of another democratic state, nor does it require this country to shelter those living in Canada from the reach of foreign laws.”
There is that misuse of the word “avoid” again. I would love to see a court define “avoiding their obligations”. Is one truly obliged to participate in taxable activities, in order to not avoid the taxes on the activity? Can the Canadian gov. oblige nonsmokers to pay taxes on cigarettes? By not smoking, nonsmokers are avoiding tobacco taxes. Where does the court draw the line?
Has the idea of jurisdiction simply disappeared? Why would “duly-enacted laws of another democratic state” have any power to oblige anyone living in Canada to do or not do anything? Especially if the person has never lived as an adult in that other democratic state?
“Indeed, as was noted earlier, insulating persons resident in this country from their obligations under duly-enacted laws of another democratic state is not a value that section 15 of the Charter was designed to foster.”
This presumes that FATCA was duly-enacted and that the all countries have similar laws determining citizenship. As this “duly-enacted” bit keeps coming up then the fact that the IGA has not been ratified by the US Senate becomes relevant. It has not been duly-enacted.
Does this also mean that a Canadian born Canadian with one US citizen parent can be subject to persecution extradition and prosecution if found violating US law in Canada? How does even duly-enacted laws of other democratic states have jurisdiction in Canada?
The court makes no distinction between a resident of the US who violated US law while resident in the US fleeing to Canada to escape their responsibility and Canadians born in the US and living there since childhood or Canadians born in Canada with a US citizen as a parent. Incredible.
@Japan T
Thank you for your excellent comment which reveals a big part of the problem. For the FATCA lawsuits to succeed it is important to reinforce and reinforce and reinforce that this primarily affects Canadian citizens living in Canada. It is NOT about Americans somehow parking themselves in Canada to avoid U.S. law. The McTavish decision (I think) assumes (without stating) it applies to Americans coming to Canada to somehow avoid U.S. laws. Interestingly, she has written one or more decisions about the issue American soldiers coming to Canada to flee the Iraq war.
@Petros
Yes, language matters hugely. The first step in using a legal system to persecute people is to ensure that people can’t easily understand the laws. The second stop is to use lawyers and other interpreters of the law to become the primary agents of the state in the implementation of the law. The third step is to ensure that the lawyers and other interpreters will themselves be subject to sanction if they don’t interpret and encourage compliance in specific ways. All three of these conditions have been met in the implementation and enforcement of the U.S. extra-territorial tax regime (citizenship-based taxation with FATCA as the enforcement mechanism).
In the case of U.S. tax compliance the lawyers/accountants/banks are the primary interpreters and enforcers of U.S. extra-territorial injustice. (The victims don’t even understand what is required of them. Hence, a visit to the “tax professional”.) Although legal professionals may not support FATCA per se, they do support the principle that the role of the profession is to support the implementation of the law – any law, even the immoral implementation of U.S. tax law on Canadian residents.
Law is used as a cover to commit many atrocities. I have often wondered whether the world we live in today would be different, had German lawyers in the 1930s opposed the implementation of certain laws enacted by the German Government. Rather than oppose the laws or refuse to aid in their enforcement the lawyers simply said:
“It’s the law”.
(It is clear that the problem was that “It’s the law”.)
This reminds of an earlier post “When Law Becomes A Substitute For Morality” which has appeared and reappeared a few times on Brock:
http://isaacbrocksociety.ca/2017/03/08/when-law-becomes-a-substitute-for-morality-2/
I’ve relinquished. Before the payment to do so. It was sh*tty– caused a LOT of back & forth + travel + forms BS. This was in Perth in 2015.
I’m a single mum and I’ve donated all along to this CA issue- which may never actually be applicable to AU. Where are the high-rollers?
I’m sick of us– who can’t even buy nice food, acquiescing to the richies.
The full Mondaq article is not behind a paywall, one can simply dismiss the box that appears (click x in the top right corner) and continue reading.
Some thoughts from a non-lawyer:
The judgement in Hillis v. Canada seems quite straightforward. The court decided that the IGA is consistent with the information exchange and collection assistance provisions of the tax treaty, that it does not violate other federal law, and that it does not enable the collection of US taxes against Canadian citizens.
The judgement in Deegan v. Canada is perhaps a little more nuanced. It argues that bulk transfer of information is not inconsistent with the existing provisions for information exchange under the tax treaty, even if these were originally intended for specific investigations of individuals. Beyond that, it basically claims – rightly or wrongly – that FATCA’s threat to the Canadian financial system justified the actions taken by the Canadian government. Regarding national origin discrimination and the court’s apparent distaste for “insulating persons resident in this country from their obligations under duly-enacted laws of another democratic state”, this judgement presumably takes into account the fact that there is a simple legal cure for any Canadian who wishes not to have their banking information reported to the IRS – renounce US citizenship.
Overall, the court rulings suggest rather strongly that the IGA won’t ever be considered unconstitutional. This implies that the solution is political, not judicial: one must convince Parliament that the violation of Canadians’ privacy rights is a greater concern than the perceived threat to the Canadian financial system. Two plausible grounds on which that case might be made: (1) the US does not reciprocate, so the current arrangement is deeply unfair; (2) the simple legal cure of renunciation is expensive and beyond the means of many ordinary Canadian families.
@USCA
So why is it then that lawyers who are actively opposed to FATCA will not publicly state that Canadian citizens living in Canada who also happen to have US citizenship should invest as they please and ignore any US tax filing obligations because there is no risk to non-compliance?
Surely that’s considerably less risky than a German lawyer denouncing Nazi laws in the 1930s.
CRS failed the first time because the US pulled out the last minute. When is the EU going to stop pretending that the US is reciprocating under FATCA?
“Alternatively, for these temporarily stranded streams of globally mobile capital, there is one jurisdiction not subject to the reporting requirements of either fatca or CRS, and which has a perfectly reliable banking industry, at least from the perspective of clients looking for “financial privacy”—namely, the United States. Owing to the unilateral and only partially reciprocal nature of fatca, U.S. financial institutions are generally not required to share certain elements of foreign account holders’ information with their respective tax administrations (such as account balances and beneficial owners). As “the rest of the world provides the transparency that the U.S. demanded, the U.S. is rapidly becoming the new Switzerland,” a situation that prompted a Bloomberg editorial to remark that “[s]huttering foreign tax shelters only to steal their business is a bad move.”
https://americanaffairsjournal.org/2019/11/tax-sovereignty-in-the-age-of-global-capital/
@Ron
Here we go yet again with the “to comply or not comply” theme. Your question is answered in the second paragraph of the comment above.
http://isaacbrocksociety.ca/2019/12/03/article-about-the-adcs-fatca-lawsuit-by-us-tax-lawyer-unintentionally-explains-why-fatca-lawsuit-is-important/comment-page-1/#comment-8707987
Specifically:
“If a law is unjust, a man is not only right to disobey it, he is obligated to do so.” – Thomas Jefferson
So much for “it’s the law.”
True for everyone except lawyers, apparently.