The report has been released as of May, 2013. I didn’t read most of it but scanned through until it came to the section on FATCA (Chapter 4, Tax Collection Agencies and the Exchange of Tax Information).
http://www.parl.gc.ca/Content/HOC/Committee/411/FINA/Reports/RP6085040/411_FINA_Rpt17_PDF/411_FINA_Rpt17-e.pdf (page 23)
I am reproducing the entire section; emphases are mine:
U.S. Foreign Account Tax Compliance Act
In their appearance before the Committee, some witnesses discussed the U.S. Foreign Account Tax Compliance Act (FATCA), which came into force on March 18, 2010. The FATCA requires foreign banks to disclose annually, to the IRS, the names of all American account holders, or a 30% withholding tax will be applied on all U.S. income earned by the institution or by an account holder. The Canadian Bankers Association stated that, with the FATCA, the United States is trying to bypass the exchange of information between the IRS and foreign tax authorities and, instead, to get information directly from foreign financial institutions. In its view, this approach could create problems because of conflicts between Canadian privacy legislation and the FATCA.
As well, a number of witnesses said that the size of the U.S. economy and the amount of money invested in the United States by non-resident individuals has allowed the United States to have some success with reporting requirements in respect of foreign accounts. While Arthur Cockfield suggested that Canada should pursue mandatory bank account reporting requirements for foreign financial institutions operating in Canada, David Sohmer thought that this measure would be much more difficult for the Canadian government to pursue due to the relatively small size of the Canadian economy and the importance of foreign investment in Canada. Robert Kepes advocated an examination of the implementation of a FATCA-like regime for foreign financial institutions that operate in Canada, while Global Financial Integrity indicated that Canada should implement its own version of FATCA in order to prevent cross-border tax evasion by individuals. The Tax Justice Network requested a FATCA-like regime that would apply to foreign branches of Canadian banks and would require such branches to submit financial information in relation to Canadian account holders to the CRA or risk losing the right to operate in Canada. Finally, in order to promote the exchange of taxpayer information, Arthur Cockfield advocated incentives that would induce tax havens and offshore financial centres.
While I am not surprised, I did hope there might be some mention of how badly FATCA will affect certain Canadian citizens and perhaps a hint of whether or not Canada would actually sign on to FATCA/IGA. There is nothing in the recommendations to indicate any approach to FATCA. The focus seems to be totally on the ineffectiveness of bilateral agreements/TIEA’s and that the move should be toward automatic information exchange.
Considering all the grief Brockers have to deal with when trying to come into compliance, Scot Michael outlined some key points that the Voluntary Disclosure Program of CRA should include. Imagine how much better we would all feel if the US approach were more like this.
*amnesty from criminal prosecution,
*penalties proportional to the offence
* no penalties for non-resident individuals who pay foreign income tax
* timely resolution of cases
* random checks of amended returns in order to ensure compliance
* aggressive enforcement of tax law
Both the NDP and the Liberals added sections with recommendations of their own; none would seem to directly affect our situation. Perhaps Tim could outline what happens with these reports and whether or not they have much influence on future government decisions.
Der Spiegel has an article in this week’s printed edition (not on-line) on the offshore tax industry in the Caribbean country of St Kitts & Nevis. Following is a brief history from this article called “All inclusive” (translated):
“1984, one year after independence, an American lawyer suddenly popped up on Nevis. He had previously done business in Liberia, primarily with ship owners who wished to escape the high taxes in their home countries. Then came the rebellion in Liberia making life difficult there. What would the government of Nevis think when a similar model would be set up in the Caribbean?
Subsequently the American attorney and his people began reviewing the infrastructure (in St Kitts & Nevis). They designed the needed laws, trained employees and set the fees. As the prototype for company law they took the American tax haven Delaware, a state of the east coast of the USA.”
Scott Michel and his firm helped shape OVDI with no consideration for ‘benign actors’ living abroad. He and Mark Matthews ‘tell all’ in their report “OVDI is Over-What’s Next for Voluntary Disclosures?”:
“Approximately a year ago, we wrote an extensive critique of the first VDP and its aftermath, offering praise and criticism when we believed it was due as well as suggestions for modifying the VDP.”
Thus OVDI (or #2 as they call it) was born.
Now that it’ over, what did everyone learn from OVD#2?
“One Size Does Not Fit All
Tax noncompliance is found in a wide variety of conduct with dramatically varying levels of knowl- edge or willfulness. We can leave aside for the moment the issues unrelated to offshore accounts. In the relatively narrow categories of behavior associated with unreported bank accounts, private practitioners encountered a broad range of culpa- bility. There were a few of the stereotypical offshore tax cheats — native-born U.S. citizens who, on their own accord, decided to evade taxes and developed plans to use offshore entities and accounts to shield from taxation funds earned in the United States. That is the media image of offshore tax evaders and an image promoted by IRS public statements. For that group, the penalty levels in the OVDI programs were, in our judgment, appropriate, perhaps even generous when combined with a criminal amnesty.
It may surprise most observers, but we saw few cases like that. It is anyone’s guess why. It may be that this aggressive and risk-prone group was pre- pared to let it ride. Or perhaps there simply are not as many of them as anticipated.”
More importantly to minnows:
“Starting mostly with OVDI #2, another group of taxpayers began streaming in. They had lived abroad for many years. Some had been born to foreign parents and left this country as infants; many were dual citizens at birth. All had routine ‘‘foreign’’ bank accounts in their country of resi- dence and were fully compliant with the tax laws of that country. Few had grown up in countries that taxed worldwide income. Others had been assured by foreign accountants that they did not owe U.S. taxes (which was often true because of the foreign tax credits available to them). A few did not even know they were U.S. citizens. Yet, in part because of frightening publicity in their home country, for the first time, the taxpayers in that group — which comprised probably only a small percentage of noncompliant Americans living abroad — were anxious and concerned.
In the guidance for OVDI #2, the IRS, to its credit, attempted to create a penalty safe harbor of 5 percent as long as these sorts of individuals in- volved had little or no U.S.-source income.4 But even that penalty structure discouraged most per- sons in this group from entering OVDI. Most of them owed little or no U.S. taxes, and having to forfeit 5 percent of their unreported financial ac- counts just for peace of mind seemed excessive, especially given the need to expend thousands of dollars in legal and accounting fees to submit eight years of tax returns and FBARs. We can attest that many people in that group are likely, at best, to start filing next year, and that some will simply remain noncompliant and expect, with good reason, that the IRS will never find them.”
We can understand from this report how people like Patricia from Canada were run through the wringer under OVD#1:
“In OVDI #1, the IRS spent far more of its own resources to bring taxpayers back into the system and process their filings. There were months of individualized, intensive audits of the amended filings. That lasted until the IRS apparently recog- nized that the resources devoted to the process outweighed any incremental benefit. Still, agents spent countless hours poring over amended re- turns, plugging numbers into audit reports (often making errors, however unintentional), scrutinizing foreign bank statements and foreign exchange rates to ensure a precise penalty calculation, and then pushing the entire process through the funnel of a closing agreement. To this day, we do not under- stand why the IRS did anything but spot-check selected returns.”
I can only guess with results like this, that was how Streamlined was born.
Hindsight is a factor even for the so called experts it seems.
I remember the articles of Scot Michael. I think that’s why I was surprised he stated key points for CRA that at least in the beginning, he would not have advocated for the US.
At least it is good to know that some are “getting it” and hopefully, if they have influence, can bring the reality more in the open and hopefully, put an end to this disaster.
@bubblebustin, re; “…There were a few of the stereotypical offshore tax cheats — native-born U.S. citizens who, on their own accord, decided to evade taxes and developed plans to use offshore entities and accounts to shield from taxation funds earned in the United States. That is the media image of offshore tax evaders and an image promoted by IRS public statements…”
“That is the media image of offshore tax evaders and an image promoted by IRS public statements.”
Deliberately crafted and promulgated. In spite of information to the contrary. The IRS knew better, but continue to ‘promote’ that image in their public statements – which proves that they were entirely willing to continue to torment minnows and krill abroad for their own ends.
The Taxpayer Advocate will no doubt feature more about this in her next report to Congress. And the recent GAO report does briefly mention an analysis that identified a significant sub-group of minnow OVD participants who live and therefore bank abroad.
There is no doubt that all the ‘compliance’, and even ordinary filing options that the IRS offers for those living abroad …”imposes undue burden, results in inequitable treatment of taxpayers, and has likely undermined respect for the IRS and the tax system…”
Add to that, it has irreversibly undermined any possible respect for the US, any desire to be and remain a US citizen, and obliterated any possibility to reconcile US demands with any normal life ‘abroad’.
And due to our work raising awareness of the flaws of the the Canada-US tax treaty, and the punitive effects of US extraterritorial taxation, the IRS and Treasury have helped to call their own tax system into international disrepute.
They may continue to call the OVD programs a ‘success’, but they are helping to shoot themselves in the foot.
The US should not be looking to the US for models of tax fairness, justice, ‘education’, etc.
The latest GAO report still has the IRS claiming that it has done ongoing ‘education’ of those ‘overseas’ via sending notices to stateside practitioners, and putting stuff on its website. No change to the forms or requirements to make them less burdensome or costly to comply and necessary to obtain expensive professional help. No plan to reverse the budget cuts at embassies and consulates that preclude providing any even sporadic IRS information and help services there – Not even for the > 1 million just over the border, in Canada, or Mexico.
Still only the stick, in lieu of the carrot. Applied to those who often owe the US nothing, and otherwise are assessed as owing only as the result of the twisted application of US taxation rules to non-US countries and those abroad.
They’ll never learn, the GAO will pretend that the IRS is taking into account its findings, the IRS will pretend to have done ‘education’ rather than only oppressive enforcement, theTaxpayer Advocate will not be heeded, and the farcical pretense of fairness will continue for those with unwanted US status. Congress will continue to pass confiscatory measures and kneejerk punitive laws aimed at those who aren’t there to oppose them. Lots and lots more taxation and enforcement without representation or benefit.
On the other hand, I am taking real pleasure in enlightening anyone I come across, and trying to unmask the US IRS and Treasury for what it really is – an arrogant and aggressive threat to Canada and Canadians.
The points you are making regarding “education” really hit a nerve. As far as I can see, there has been (still) nothing done to make Americans abroad aware of the need to file FBAR nor file tax. They didn’t even follow through on some of the points outlined in a 1998 report on what they had done (nothing that would reasonably result in people “overseas” understanding their “responsibilities”) and what more needed to be done. I still, in 19 months, have yet to see anything outside of IRS posting on their website. Everything else is basically, from our end. It makes me sick to think, in a way, we are doing their work for them. GRRRRRRR