Canadian FATCA Litigation Update: Please read below the “Notice of Constitutional Question” alerting AGs of all Canadian Provinces and Territories of our upcoming trial dealing with a Constitutional question — and PLEASE DONATE to help pay our legal expenses
[BTW, THANKS for the Thursday afternoon donation!]
The below is a Notice of Constitutional Question” just sent by Appellants Gwen and Kazia to alert Attorney Generals in all of the Canadian Provinces and Territories of our upcoming trial in Canada’s Federal Court of Appeal.
It provides a very brief summary of the arguments and the remedy our appellants want.
If you don’t like Canada’s FATCA IGA legislation, please DONATE to help pay our legal expenses.
“NOTICE OF CONSTITUTIONAL QUESTION
The applicants challenge the constitutional validity of:
1. Sections 263-269 of the Income Tax Act R.S.C. 1985, c.1 (5th Supp.) and
2. The Canada-United-States Enhanced Tax Information Exchange Agreement Implementation Act, which is s. 99 and Schedule 3 of the Economic Action Plan 2014 Act, No1, S.C. 2014, c.20
(Collectively the “Impugned Provisions”)
Further, the Applicants seek a remedy pursuant to s.52 of the Constitution Act, 1982, being Schedule B to the Canada ACT (U.K.), 1982, c. 11 that the Impugned provisions are of no force or effect to the extent that they violate s. 8 of the Charter and cannot be saved by s.1.
The question is to be argued on a date to be set [Court is now deciding on the date]
The following are the material facts giving rise to the constitutional question:
1. The impugned provisions operate to compel banks to act as agents for the government in the collection of private information from people who the banks believe have indicia of US citizenship.
2. Those same people are compelled to provide private information to the banks.
3. That information is transmitted from the banks to the CRA and from the CRA to the IRS.
4. The IRS can use that information for the enforcement of its tax laws including for the prosecution of tax evasion.
5. The compelled collection and dissemination of this information is from persons who might never have lived in the United States, who might have citizenship to another country, and who might have no economic, social, familial, cultural or moral ties to the United States.
6. The purpose of the Impugned Provisions is simply to facilitate the interests of the US tax authority.
The following is the legal basis for the constitutional question, as elaborated in the Appellants’ Memorandum of Fact and Law attached to this Notice of Constitutional Question as Schedule A:
1. The privacy in the compelled information is constitutionally protected through section 8 of the Charter and the compelled collection and dissemination of that information constitutes an unreasonable seizure under section 8.
2. The trial judge erred in law in finding that the Impugned Provisions do not violate the rights guaranteed by section 8 of the Charter.
3. The trial judge erred in law by considering factors under the section 8 Charter determination which were irrelevant to that section and, instead, to be properly considered under section 1 of the Charter.”
Dated: March 22, 2021; sent to Attorney General of Canada (who we are suing) and the Attorney Generals of all of the Provinces and Territories of Canada
Send Your Submission to US Senate Finance Committee on “How U.S. International Tax Policy Impacts American Workers, Jobs, and Investment” – Deadline 7 April!
The Senate Finance Committee is accepting submissions on “How U.S. International Tax Policy Impacts American Workers, Jobs, and Investment.”
The statement must be in a Word document, single-spaced, not exceeding 10 pages. No other file type will be accepted for inclusion. Title and date of the hearing (25 March 2021), and the full name and address of the individual or organisation must appear on the first page of the statement. Statements must be received no later than two weeks following the conclusion of the hearing. Send to: Statementsfortherecord@finance.senate.gov Deadline: Wednesday 7 April.
Stop Extraterritorial American Taxation (SEAT) brought this to my attention and they give further information about this Committee hearing on their website. SEAT encourages all Americans living overseas who would like to submit a statement to do so; and, should you wish a model, they’ve put several templates on their website.
Access to Information Request Reveals Majority of Canadian Accounts Reported under FATCA Fall Below the Balance Threshold Required by US Law – This information does not need to be sent to the IRS!
Over the past several years, a “Concerned Citizen” has submitted several Access to Information requests to CRA, demanding detailed information about what is being reported. After a series of complaints and appeals, CRA has been more forthcoming. I have seen the document received in response and asked Concerned Citizen to provide a brief summary of the results:
“A recent Access to Information Act Request revealed that for 2019, Canadian financial institutions reported approximately 615,000 accounts with a balance under US$50,000 to CRA for eventual transmission to the IRS under the terms of the FATCA agreement. The US-Canada IGA sets out a reporting threshold of US$50,000 – accounts below this balance are not required to be reported. Canadian banks have nevertheless chosen to report accounts of lower value. With approximately 1 million accounts reported in total for 2019, over 60 percent of these records did not need to be sent. Since reporting began in 2014, roughly one-half to three-quarters of all accounts reported fell below the balance threshold and need not have been included in the annual transmission of data to the IRS.
Total accounts and account-holders reported
These numbers have been publicly available, though the request has given us more accurate totals than the estimates published in media accounts.
2014 158228
2015 318345
2016 632042
2017 727280
2018 900000 approx
2019 1000000 approx [to be confirmed]
Because individuals and business entities generally have multiple accounts, the total number of individual account-holders subject to FATCA reporting will be much lower than the total number of accounts reported. CRA was asked to estimate the number of account-holders based on common elements in the data, such as matching addresses, SIN or SSN values, etc. CRA was unwilling or unable to provide this information.
Country of account owner
FATCA requires that Canadian financial institutions identify accounts held by US persons, regardless of where they live. CRA was asked to provide the total numbers of accounts associated with Canadian addresses and with US addresses. This allows us to estimate the proportion of Canadian residents affected (who could be dual citizens, or US expats without Canadian citizenship) to US residents affected (who could be Canadian expats in the US, or former US expats with Canadian assets).
CRA initially refused this request, but after an appeal and complaint it eventually provided a set of estimates for individuals and entities associated with addresses in each country. Of interest, the Canadian addresses make up 62 to 75 percent of the total accounts – so roughly one-quarter to one-third of accounts reported likely belong to US residents, who would be US taxpayers and presumably filing FBAR reports as well. The following table shows the percentage of Canadian addresses each year:
| — | Canada address | US address | — | % Canada | |
| — | Individual | Entity | Individual | Entity | — |
| 2014 | 90K | 3K | 50K | 4K | 63 |
| 2015 | 140K | 40K | 100K | 9K | 62 |
| 2016 | 240K | 165K | 170K | 19K | 68 |
| 2017 | 280K | 215K | 175K | 19K | 72 |
| 2018 | 510K | 175K | 205K | 20K | 75 |
| 2019 | 505K | 150K | 225K | 21K | 73 |
(Astute readers may notice that the total number of records for each row does roughly match or fall slightly below the total number of accounts reported each year in the table previously shown.)
Accounts below reporting threshold
The US-Canada IGA only requires financial institutions to report US-person accounts with a balance over US$50,000. However, they are not prevented from reporting lower-value accounts. There has long been concern that banks were reporting more accounts than necessary, but no proof of this on a systematic basis.
CRA was asked to provide the number of accounts reported each year with a balance below the threshold. They initially refused, but after an appeal and complaint they did provide some estimated values. The following table lists these numbers along with a percentage of the total accounts reported for each year.
| % Total | ||
| 2014 | 115000 | 73 |
| 2015 | 200000 | 63 |
| 2016 | 330000 | 52 |
| 2017 | 345000 | 47 |
| 2018 | 610000 | 68 |
| 2019 | 615000 | 62 |
[the percentage for 2019 is based on the estimate of 1 million total – to be confirmed]
This information tells us that in any given year, anywhere from one-half to three-quarters of the account records sent to the IRS (via CRA) by Canadian banks were lower-value accounts that did not need to be reported.
Non-reportable account types
CRA was asked if they had any data to indicate that accounts belonging to types excluded from reporting under the IGA – RRSP, RESP, RDSP, TFSA and other similar accounts – were being reported to the IRS. CRA replied that the data they receive from financial institutions does not include any information to indicate account type. This is both good news and bad news. While we cannot rule out the possibility that some Canadian banks report these accounts when they are not required to, CRA’s response does indicate that the IRS would receive no information indicating the account type, which would be a possible concern for anyone holding TFSAs, for example.”
At Least 6705 Americans Renounced Their U.S. Citizenship in 2020
As reported by American Expat Financial News Journal, at least 6705 Americans renounced their U.S. citizenship in 2020 — according to U.S. Treasury.
— This, despite US consulates/embassies closed for this service during much of 2020.
2020 Quarterly Renunciations:
Q1 2907
Q2 2406
Q3 732
Q4 660
Some previous years:
2016 5410
2017 5132
2018 3974
2019 2071
Expatriation is a right that should not be made difficult.
Dutch citizen loses lawsuit contesting bank requirement to provide U.S. TIN: Thank you for taking this to Court
The PURPOSE of this post is to thank the courageous Dutch citizen (below), the Jennys, the Gwens and Kazias, the Fabiens, the Marc Zells (and their Plaintiffs), and all others who decided to take their complaints and their names to an actual Court of Law to stop imposition of these bad U.S. laws on their own countries.
[This news came from Fabien Lehagre and the AEFNJ.]
A Dutch citizen, who left U.S. as an infant, went to Court to contest his bank’s requirement that he needed to obtain a U.S. Tax Identification Number (TIN) for his accounts.
The Central Netherlands District Court ruled in an Interim Injunction on December 23, 2020 that the Volksbank may close one of his accounts and that the Dutch citizen would have to pay part of “costs”.
— There will be different reactions to this litigation, but there will be some who feel the need for many more citizens of Netherlands and other countries to lodge these complaints against their own governments.
From the Court Ruling (see link), here are some of the Dutch citizen’s complaints (using Google Translate to English)[Do you agree with his arguments?]:
“3.4.
[Claimant] puts forward four arguments on this point, which – in short – read as follows:— It is not Volksbank’s task to enforce compliance with foreign law. There is no Dutch legal basis for this and there is also no Dutch legal obligation to request a TIN.
— Possible obligations of Volksbank under US law must give way to the right of [claimant] to a (basic) bank account. Volksbank must respect the fundamental rights of [claimant] (arising from, among other things, the GDPR and the ECHR).
— Volksbank may not put the problem of extraterritorial US regulations on the hands of [claimant] by terminating the relationship. Instead, the banks, in collaboration with the Dutch and European governments, must make an effort to improve the position of the Accidental Americans.
— For the time being there is no question of American sanctions against financial institutions such as Volksbank and by allowing the claims of [plaintiff] in these interim relief proceedings, Volksbank can demonstrate that it has fulfilled its best efforts obligation to obtain a TIN from [plaintiff]. Such an obligation of best efforts complied with averts the risk of US sanctions.
[3.5.
The preliminary relief judge is of the opinion that these arguments of [claimant] are unsuccessful and explains this below.]AND
“Other arguments
3.10.
— This termination is contrary to legal and contractual obligations (including the General Banking Conditions) and also unlawful.— Volksbank may not assume that [plaintiff] is guilty of forgery and tax evasion and may not terminate the banking relationship on that ground. By terminating on these grounds anyway, Volksbank provides [plaintiff] with a bad history, which prevents him from entering into a new banking relationship with another bank.
— The termination of the bank relationship must be assessed on the basis of neutral grounds for termination on the basis of the usual assessment framework. In that context, a weighing of interests must take place and this works out in favor of [claimant], because the consequences of termination for [claimant] are too great. It is essential for him to have access to the banking system and to keep his retirement products.”
See Link to December 9, 2020 U.S. District Court filing against U.S. State Department. It argues that excessive (US $2350) renunciation fee violates First, Fifth, and Eighth Amendments and is “…arbitrary, capricious, contrary to a constitutional right, not in accordance with law, not supported by substantial evidence, and in excess of statutory jurisdiction”
Here is the link to the December 9, 2020 U.S. District Court filing by Marc Zell on behalf of plaintiffs and AAA.
The Complaint starts out by saying:
“1. Voluntary expatriation, the ability to renounce one’s nationality [1], is a fundamental right, upon which, arguably, all other civil rights ultimately depend. In the words of Thomas Jefferson, expatriation is a “natural right which all men have.” A Bill Declaring Who Shall Be Deemed Citizens of This Commonwealth, June 18, 1779….”
Another Country Threatens to Enforce Citizen-Based-Taxation
Serbian President Vucic threatens to enforce its Citizen-Based-Taxation, using a method of credits and exemptions similar to USA’s tax regime.
The articles are translated below, describing a system similar to the US system. The article describes that the ability to tax extra-territorially exists according standing laws. It highlights the usage of “or” in their language mentioning a significant connection such as property or bank account back in the Serbian expat’s homeland.
Southern Europe (both in and outside of EU) is well known for having a large net loss of young workers due to economic migration to high-wage countries. Serbia has a long history of high education and skilled craftsman which are under high demand in high-wage countries. With a rich culture and strong Christian family ties, most Serbs have a strong connection to their families, church, and family properties in their homeland.
The exemption is proportionally lower than the US exemption, however the tax level appears lower. The details would be difficult to fully understand, as the Serbian system has a very high (50%?) employer-contribution social fee (that paid prior to the employee receiving his salary). The social fee appears to potentially be charged to expats. As salaries inside Serbia are very low (typical white-collar worker might have a salary under 500 Euros per month), it seems that most locally-employed persons have an income tax of about 10%. However, the salaries of an expat would be many times greater, and the credit amounts would become more complicated as the local Serbian tax rates raise above 10% at the level of the salaries of Europe or North America.
U.S. “TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION” (TIGTA) argues in IRS audit for much better enforcement of tax rules for those who expatriate to support “Congress’s attempts to create disincentives for tax-motivated expatriation”
[The audit is now mentioned in Tax Connections from, I think, a tax compliance perspective]
A commenter on Brock found this link to a recent September 28, 2020 TIGTA audit, a “review to determine the effectiveness of the Internal Revenue Service’s efforts in ensuring compliance with the expatriation tax provisions under Internal Revenue Code Sections 877 and 877A…”
Expatriation is a human right.
However the United States Congress and the U.S. Treasury Inspector General for Tax Administration (TIGTA) aim to discourage anyone who renounces because they don’t want the burden of annually filing those US tax forms — there must be disincentives for these persons.
TIGTA specifically argues that without a much better IRS “Centralized effort, Congress’s attempts to create disincentives for tax-motivated expatriation via I.R.C. § 877A will not be effective”. Of course, the disincentives would be applied also to “Accidental ‘Americans’”.
The audit concluded that IRS tax compliance efforts for expatriates is a mess and found, for example:
“TIGTA found that the IRS database of expatriates was incomplete for 16,798 expatriates who did not file Form 8854. In addition, TIGTA found instances of potential nonfiling, underreporting of income, and/or payment compliance issues by expatriates. From a sample of 26 expatriates who did not file a Form 8854, five had potential unreported income over $6 million. From a sample of 61 expatriates who filed a Form 8854, 15 had potential unreported income over $17 million. Lastly, TIGTA also found that expatriates with high net worth appear to not be paying their exit tax.”
… and TIGTA made some recommendations.
Stop Extraterritorial American Taxation (SEAT) Launches
A new organisation, Stop Extraterritorial American Taxation (SEAT), which is singularly focused on ending CBT, has been formed by John Richardson, Keith Redmond, Karen Alpert, Laura Snyder, David Johnstone and Suzanne Herman.
“While there are several organizations for American expatriates that address the tax issues, none is solely focused on extraterritorial taxation. SEAT is a non-partisan international organization created under the laws of France (Law of 1901). Furthermore, SEAT does not accept sponsorship from anyone in the tax compliance industry, so you can be sure that information on this site is independent. You can learn more about SEAT and its founders on our website.”
I encourage current and former US citizens to take SEAT’s Survey. Deadline is November 30th. Your participation in the Survey will enable SEAT to better educate policymakers, the media and the public.
