28 thoughts on “CTV will be taping tommorow’s hearing on tax havens in Ottawa(Cockfield, Murphy, CBA, and others)”
@nobledreamer
From what I can gather there can in theory by 100% reciprocity even though Canada does not tax on the basis of citizenship. The US could, in theory, gather and pass to Canada the exact same kind of data that it’s demanding that Canada and other countries gather and pass to it. The fact that Canada may not do anything with that data is a different issue.
I ask about 100% reciprocity because AFAIK the US currently does not have in place (and has no real plans to put in place) the mechanism and legislation that would be required for it do what it is demanding that its “partner” countries do. Any IGA Canada signs would be as one-sided as the ones that have already been signed by other countries. The fact that the US demands of its “partner” countries what it itself is unwilling to do exposes the blatant hypocrisy of the US position, and could possibly be used as one (of hopefully several) rallying points against FATCA. I mean really, how can it possibly be justified for a country to roll over and sign such a hypocritical, one sided agreement?
Of course, all of the above is based on my no doubt imperfect understanding of FATCA, so take with the appropriate grain of salt.
@tdott
Thanks for your thoughts. I wonder though, would it be permissible for Canada to even accept that info? I know we have a treaty and all, but since we tax on residency not citizenship, couldn’t that amount to an abuse of privacy rights? What business is it of the gov/CRA if the info is not required under ITA?
Yes, it is true also AFAIK that the US does not intend to really reciprocate but there seem to have been some who made a point about this. Germany comes to mind.
Lots and lots of back-and-forth about whether to establish the tax gap (or not). Yawn
Questioning relationship of Canada and Barbados.
Whistleblower idea has appeal.
Mr. Kepes “…you cannot measure the total amount of proceeds from tax evasion, because it is, by definition, being deliberately hidden by the tax evader. However, the government should be able to measure the CRA’s efforts and results in capturing tax evaders.
To that end, I did a very unscientific survey by searching the term “tax evasion” in the Canadian Legal Information Institute case law database. The search obtained 670 results, representing all of the Canadian court cases from 1900 that mention the phrase “tax evasion”. I narrowed the search to include the word “offshore” and obtained only 21 results. That strikes me as a very low number. I then went to the CRA website, because it routinely posts press releases of tax evasion convictions. There were 24 in the last three months, but none of them involved unreported income offshore.”
Mr. Pascal Saint-Amans “We also need to eliminate double non-taxation.”
Hon. Scott Brison:
So is FATCA the best game in town in terms of…. Not to make perfection the enemy of the good, but is that what we ought to be focused on? Is that the best way?
Mr. Robert Kepes:
I think the United States is in a unique position because it taxes its citizens based on citizenship. So if a U.S. citizen lives in the Bahamas, they still have to file a report of U.S. return. Same thing in Canada.
The problem with FATCA is that essentially it’s the extraterritorial application of U.S. law. In other words, Canada is allowing the U.S. to get information directly from a Canadian financial institution about a Canadian resident. But short of that, you’d have to have a multilateral FATCA in order to achieve and get the results and get the information that the government would need in order to pursue the—
Hon. Scott Brison:
The G-20 could be an operative.
Mr. Robert Kepes:
Yes, but it becomes a little bit like pushing mercury. Outside of the G-20, even if you implemented a FATCA for the G-20, there might be a 21st, a 23rd country that would not comply with FATCA. There are probably financial institutions that are not complying with FATCA because they may not want to carry on business in the U.S.
Canadian banks do carry on business in the U.S. and the penalty for not complying with FATCA is severe.
Mr. Guy Caron (Rimouski-Neigette—Témiscouata—Les Basques, NDP):
Thank you, Mr. Chair.
I would like to thank you for your presentations. The subject is very interesting but quite complex.My first question is for Mr. Saint-Amans.
In your presentation, you mentioned that a key issue in tax avoidance, tax evasion and tax havens was the question of transparency. But when measures like the Foreign Account Tax Compliance Act or even other automatic mechanisms for information exchange are mentioned, people complain because they say it is an invasion of privacy.
Where do you think we should draw the line between the need for transparency and the need to protect privacy?
Mr. Pascal Saint-Amans:
Thank you for this question. Again I’m sorry to respond in English, but I heard your question in English through the interpretation.
I have a couple of comments. One is that we have made very significant progress towards better transparency through exchange of information on request, which is very protective of privacy and confidentiality, as one of the conditions to exchange the information is to make sure that confidentiality will be protected within the requesting party.
Contrary to what Professor Collier indicated, exchange of information on request is working. There is evidence. I’m here in Malaysia to assess the effectiveness of information exchange, and we have published reports describing this. So the evidence is there.
When you move to some other forms of information exchange, such as automatic exchange of information—and that’s the case through FATCA—the U.S. has been able to convince dozens of countries throughout the world to agree to an automatic exchange of information with them, or something that is equivalent to automatic exchange of information. Please note that the G-20 is now moving in that direction.
Within the OECD, we’re working at developing a platform to facilitate automatic exchange of information for countries. One of the challenges is to ensure that a country will exchange automatically with another country that will respect the confidentiality of the information. We are working on establishing standards to make sure that we check the ability of another country to respect that confidentiality.
But privacy is respected. The exchange of information is limited for tax purposes, and the information will remain within the tax authority— or might go, if both countries agree, to other enforcement agencies, but it’s not for public disclosure.
Mr. Guy Caron:
I would like to make sure I’ve understood correctly. According to you, a mechanism, a philosophy or a direction like the Foreign Account Tax Compliance Act is acceptable on the condition that it is not unilateral, but multilateral, like in the context of the G20, for example. Is that correct?
Mr. Pascal Saint-Amans:
FATCA is unilateral legislation, and the way it has been implemented is largely through bilateral agreements. If a country wants to negotiate an agreement with the U.S., it can negotiate this agreement, which can be reciprocal or not reciprocal. As regards the confidentiality part of it, if you move towards automatic exchange of information, the very strong recommendation is to make sure that the partner who will automatically get your information is able to protect it.
The Chair: (James Rajotte)
You could certainly submit anything further to the committee, Mr. Kepes, and that certainly goes for all of our witnesses.
I just wanted to wrap up with a couple of points. Again, Mr. Kepes, your sixth recommendation talks about FATCA. I’m sure you’re aware of the concerns expressed by Canadian financial institutions with respect to what they have to disclose to the U.S. government. Perhaps I’d get you to address it. How do you do automatic exchange? I think everybody nods and says that sounds like a very good idea until it’s actually implemented in a practical sense, and then it has some implications that obviously we need to be concerned about. Perhaps you could address that.
Mr. Robert Kepes:
With respect to automatic exchange, how that would work on the ground is that someone—a snowbird—would walk into a bank in Florida and ask to open a U.S. bank account, that U.S. bank would report to the IRS, and the IRS would report to the CRA. That is how automatic exchange works today between Canada and the U.S. Then of course, you’re catching an awful lot of innocent people, who are having that information provided to the Canada Revenue Agency, because every Canadian snowbird who opens up an account is going to be reported. You have an enormous amount of information that would be flowing from one country to another. That’s how the automatic exchange would work.
You would just end up having to extend it to each one of the countries Canada would have those agreements with. Presumably those countries have entered into these TIEAs, which only allow for information on request, because there’s a balance between not allowing the government to go on a fishing expedition and trying to capture everybody who has an account in Miami.
The Chair:
Okay, I do want to follow up on that in terms of whether FATCA, as it’s structured now, could be better structured or could be implemented in a better way.
Mr. Robert Kepes:
Well, from being the chair of the tax executive of the Ontario Bar Association, I know there are members of our executive who are tax lawyers who either work at a bank or advise banks. The amount of administrative nightmare they’re going through to comply with FATCA is a common complaint. That administrative burden and those additional costs that are being borne by those Canadian financial institutions presumably are not going to be taken out of their pockets, and presumably consumers may see them in either higher interest rates or higher bank charges. But my point about FATCA is that it’s not enough to have an agreement between two countries, because you’re always going to have a third country that will have a bank that will not comply with something like that because they’re not carrying out business in the U.S. That’s why I said you have to make it multilateral, if FATCA is the way to go, and you’d have to have at least the G-20 involved.
@nobledreamer
From what I can gather there can in theory by 100% reciprocity even though Canada does not tax on the basis of citizenship. The US could, in theory, gather and pass to Canada the exact same kind of data that it’s demanding that Canada and other countries gather and pass to it. The fact that Canada may not do anything with that data is a different issue.
I ask about 100% reciprocity because AFAIK the US currently does not have in place (and has no real plans to put in place) the mechanism and legislation that would be required for it do what it is demanding that its “partner” countries do. Any IGA Canada signs would be as one-sided as the ones that have already been signed by other countries. The fact that the US demands of its “partner” countries what it itself is unwilling to do exposes the blatant hypocrisy of the US position, and could possibly be used as one (of hopefully several) rallying points against FATCA. I mean really, how can it possibly be justified for a country to roll over and sign such a hypocritical, one sided agreement?
Of course, all of the above is based on my no doubt imperfect understanding of FATCA, so take with the appropriate grain of salt.
@tdott
Thanks for your thoughts. I wonder though, would it be permissible for Canada to even accept that info? I know we have a treaty and all, but since we tax on residency not citizenship, couldn’t that amount to an abuse of privacy rights? What business is it of the gov/CRA if the info is not required under ITA?
Yes, it is true also AFAIK that the US does not intend to really reciprocate but there seem to have been some who made a point about this. Germany comes to mind.
Evidence is up tonight for the meeting on Feb 26:
http://www.parl.gc.ca/HousePublications/Publication.aspx?DocId=6000637&Language=E&Mode=1&Parl=41&Ses=1
Lots and lots of back-and-forth about whether to establish the tax gap (or not). Yawn
Questioning relationship of Canada and Barbados.
Whistleblower idea has appeal.
Mr. Kepes “…you cannot measure the total amount of proceeds from tax evasion, because it is, by definition, being deliberately hidden by the tax evader. However, the government should be able to measure the CRA’s efforts and results in capturing tax evaders.
To that end, I did a very unscientific survey by searching the term “tax evasion” in the Canadian Legal Information Institute case law database. The search obtained 670 results, representing all of the Canadian court cases from 1900 that mention the phrase “tax evasion”. I narrowed the search to include the word “offshore” and obtained only 21 results. That strikes me as a very low number. I then went to the CRA website, because it routinely posts press releases of tax evasion convictions. There were 24 in the last three months, but none of them involved unreported income offshore.”
Mr. Pascal Saint-Amans “We also need to eliminate double non-taxation.”
Hon. Scott Brison:
So is FATCA the best game in town in terms of…. Not to make perfection the enemy of the good, but is that what we ought to be focused on? Is that the best way?
Mr. Robert Kepes:
I think the United States is in a unique position because it taxes its citizens based on citizenship. So if a U.S. citizen lives in the Bahamas, they still have to file a report of U.S. return. Same thing in Canada.
The problem with FATCA is that essentially it’s the extraterritorial application of U.S. law. In other words, Canada is allowing the U.S. to get information directly from a Canadian financial institution about a Canadian resident. But short of that, you’d have to have a multilateral FATCA in order to achieve and get the results and get the information that the government would need in order to pursue the—
Hon. Scott Brison:
The G-20 could be an operative.
Mr. Robert Kepes:
Yes, but it becomes a little bit like pushing mercury. Outside of the G-20, even if you implemented a FATCA for the G-20, there might be a 21st, a 23rd country that would not comply with FATCA. There are probably financial institutions that are not complying with FATCA because they may not want to carry on business in the U.S.
Canadian banks do carry on business in the U.S. and the penalty for not complying with FATCA is severe.
Mr. Guy Caron (Rimouski-Neigette—Témiscouata—Les Basques, NDP):
Thank you, Mr. Chair.
I would like to thank you for your presentations. The subject is very interesting but quite complex.My first question is for Mr. Saint-Amans.
In your presentation, you mentioned that a key issue in tax avoidance, tax evasion and tax havens was the question of transparency. But when measures like the Foreign Account Tax Compliance Act or even other automatic mechanisms for information exchange are mentioned, people complain because they say it is an invasion of privacy.
Where do you think we should draw the line between the need for transparency and the need to protect privacy?
Mr. Pascal Saint-Amans:
Thank you for this question. Again I’m sorry to respond in English, but I heard your question in English through the interpretation.
I have a couple of comments. One is that we have made very significant progress towards better transparency through exchange of information on request, which is very protective of privacy and confidentiality, as one of the conditions to exchange the information is to make sure that confidentiality will be protected within the requesting party.
Contrary to what Professor Collier indicated, exchange of information on request is working. There is evidence. I’m here in Malaysia to assess the effectiveness of information exchange, and we have published reports describing this. So the evidence is there.
When you move to some other forms of information exchange, such as automatic exchange of information—and that’s the case through FATCA—the U.S. has been able to convince dozens of countries throughout the world to agree to an automatic exchange of information with them, or something that is equivalent to automatic exchange of information. Please note that the G-20 is now moving in that direction.
Within the OECD, we’re working at developing a platform to facilitate automatic exchange of information for countries. One of the challenges is to ensure that a country will exchange automatically with another country that will respect the confidentiality of the information. We are working on establishing standards to make sure that we check the ability of another country to respect that confidentiality.
But privacy is respected. The exchange of information is limited for tax purposes, and the information will remain within the tax authority— or might go, if both countries agree, to other enforcement agencies, but it’s not for public disclosure.
Mr. Guy Caron:
I would like to make sure I’ve understood correctly. According to you, a mechanism, a philosophy or a direction like the Foreign Account Tax Compliance Act is acceptable on the condition that it is not unilateral, but multilateral, like in the context of the G20, for example. Is that correct?
Mr. Pascal Saint-Amans:
FATCA is unilateral legislation, and the way it has been implemented is largely through bilateral agreements. If a country wants to negotiate an agreement with the U.S., it can negotiate this agreement, which can be reciprocal or not reciprocal. As regards the confidentiality part of it, if you move towards automatic exchange of information, the very strong recommendation is to make sure that the partner who will automatically get your information is able to protect it.
The Chair: (James Rajotte)
You could certainly submit anything further to the committee, Mr. Kepes, and that certainly goes for all of our witnesses.
I just wanted to wrap up with a couple of points. Again, Mr. Kepes, your sixth recommendation talks about FATCA. I’m sure you’re aware of the concerns expressed by Canadian financial institutions with respect to what they have to disclose to the U.S. government. Perhaps I’d get you to address it. How do you do automatic exchange? I think everybody nods and says that sounds like a very good idea until it’s actually implemented in a practical sense, and then it has some implications that obviously we need to be concerned about. Perhaps you could address that.
Mr. Robert Kepes:
With respect to automatic exchange, how that would work on the ground is that someone—a snowbird—would walk into a bank in Florida and ask to open a U.S. bank account, that U.S. bank would report to the IRS, and the IRS would report to the CRA. That is how automatic exchange works today between Canada and the U.S. Then of course, you’re catching an awful lot of innocent people, who are having that information provided to the Canada Revenue Agency, because every Canadian snowbird who opens up an account is going to be reported. You have an enormous amount of information that would be flowing from one country to another. That’s how the automatic exchange would work.
You would just end up having to extend it to each one of the countries Canada would have those agreements with. Presumably those countries have entered into these TIEAs, which only allow for information on request, because there’s a balance between not allowing the government to go on a fishing expedition and trying to capture everybody who has an account in Miami.
The Chair:
Okay, I do want to follow up on that in terms of whether FATCA, as it’s structured now, could be better structured or could be implemented in a better way.
Mr. Robert Kepes:
Well, from being the chair of the tax executive of the Ontario Bar Association, I know there are members of our executive who are tax lawyers who either work at a bank or advise banks. The amount of administrative nightmare they’re going through to comply with FATCA is a common complaint. That administrative burden and those additional costs that are being borne by those Canadian financial institutions presumably are not going to be taken out of their pockets, and presumably consumers may see them in either higher interest rates or higher bank charges. But my point about FATCA is that it’s not enough to have an agreement between two countries, because you’re always going to have a third country that will have a bank that will not comply with something like that because they’re not carrying out business in the U.S. That’s why I said you have to make it multilateral, if FATCA is the way to go, and you’d have to have at least the G-20 involved.