LM has posed the following query to readers. It is another true life scenario in which the Canadian government and Canadian banks have put certain Canadian citizens at risk by promising to expose them to the US Federal government.
OK Brocker folks, I have a situation and need support /answers / information.
I invest with a Canadian FFI (for example, RBC-Dominion) and just got a W-8BEN from them that “has to be” filled out and signed; otherwise, they will no longer allow me to trade/invest with them. I spoke with my investment counselors associate (who knows my situation totally and has discussed much about FATCA with me) and told her I found it outrageous that I should be required to sign a US IRS form to say to my Cdn investment firm that I am not a US citizen. They (the FFI) got this exact same information from me back in 2013 via a “Substitute W-8BEN” when I transferred all my accounts there and I would be happy to sign an additional “Substitute W-8BEN” from them now. I’d even be willing to provide a copy of my CLN.
My recollection is that the IGA includes wording that allows Canadian FFIs to use their own equivalent of a W-8BEN (in this case, the “Substitute W-8BEN” with a page heading of XYZ Wealth Mgmt, ABCD Securities”) rather than the actual US form (which has, at the top “Department of the Treasury, Internal Revenue Service”, so that any signature is “under penalty of perjury” to the US).I don’t intend to perjure myself or in any way lie, but is it required, under Cdn law now, that I must sign a US legal document to prove that I am not a US citizen to my Canadian financial institution? I would hate to lose my investment advisor of many years but this has really angered me and I’m sure I am not the only one who will be getting this document to sign now that the FFIs are beginning to look more thoroughly at “established” accounts.
Any advice / information / links to the part of the IGA stating that FFIs are not required to use the US form / etc would be very greatly appreciated.
Write these concerns to your Newley elected government officials, including the new prime minister! Yesterday on Canada elections day, I drove up from upstate ny to vote! Believe me, it was a challenge on many levels, since I was already in the international registry, there were phone calls to Ottawa from the mandrake to elections Canada headquarters! Mission accomplished, was able to register and vote in my old riding last night!
I asked the question on the original thread, but I’ll ask it here too since we’ve branched off into another discussion.
Is LM investing in Canadian or US vehicles. If it’s strictly Canadian, then NO WAY should she be filling out IRS paperwork. If it involves US investments, then I think these IRS forms were in place long before FATCA and are part of another program. Will her bank bypass these forms if she sticks to Canadian investments only???
This is what is going to have to change. The practice of having to prove ‘over and over’ you’re no longer a US citizen.
If you’re a Canadian citizen and resident in Canada, that should be the end of the issue. Full stop.
I posted about this on another thread but will put it here as well:
@LM
Please see link to instructions for IRS W8BEN below. According to “Purpose of Form” section, it looks like this may only apply to “US SOURCE INCOME”. If this is so, it is another great reason not to have any US investments. Maybe other Brockers have more experience with this problem. I’m still in the learning phase but this is something we need to know about.
https://www.irs.gov/instructions/iw8ben/ch01.html#d0e175
Purpose of Form
Establishing status for chapter 3 purposes. Foreign persons are subject to U.S. tax at a 30% rate on income they receive from U.S. sources that consists of:
•Interest (including certain original issue discount (OID));
•Dividends;
•Rents;
•Royalties;
•Premiums;
•Annuities;
•Compensation for, or in expectation of, services performed;
•Substitute payments in a securities lending transaction; or
•Other fixed or determinable annual or periodical gains, profits, or income.
I think this is supposed to be normal. The US wants to tax you by withholding since you won’t file a US tax return. The 30% will be reduced by a tax treaty I expect to 15% or something like that.
You also take a credit against you home tax at tax time based on what you paid to the US.
@Neill
For US investments, not Canadian or foreign. Correct?
If you stick to non-US investments, the W8 is not required.
@Don, “If you’re a Canadian citizen and resident in Canada, that should be the end of the issue. Full stop.”
I could have not said it better….
WORSE CASE due dilligence should be an interactive form as follows;
Are you a Canadian Citizen resident in Canada? IF yes, skip everything else.
If no, Citizenship___________ Where are you resident_________________
Perhaps not entirely relevant here, but Norman posted this article I found very concerning on another thread thread about FATCA withholding. The Taxpayer Advocate Service warns,…”The IRS should not treat FATCA as the occasion for fundamentally shifting the risk attributable to the improper actions of withholding agents to non-resident U.S. taxpayers, who are least well-positioned to address and remedy such problems. Without persuasive explanation or verifiable justification, the IRS’s revised focus under FATCA has transformed Chapter 3 and Chapter 4 tax administration into a system that assumes non-compliance and is dedicated disproportionately to denying unwarranted benefits to the malfeasant few at the cost of the compliant majority who deserve their credits and refunds. In addition to the regulatory changes being contemplated by the IRS, all U.S. taxpayers who file a Form 1040NR requesting a refund of amounts withheld pursuant to FATCA, even those supported by the requisite Form 1042-S, will have the request frozen for up to 168 days, if not longer, while the IRS attempts to match applicable documentation and satisfy itself fraud has not occurred. Thus, thousands of compliant U.S. taxpayers will be denied access to their own funds while the IRS tries to marshal its internal resources and detect a relatively few bad actors. The IRS has made provisions to inform U.S. taxpayers who are experiencing “economic harm” as a result of the refund freeze that they can contact TAS for assistance. Nevertheless, the IRS has not provided TAS with any specific procedures or protocols that can be followed to assist such U.S. taxpayers and release their funds. “…
More:
http://lawprofessors.typepad.com/intfinlaw/2015/07/taxpayer-advocate-fatca-imposes-unnecessary-burdens-will-not-improve-compliance.html
@Bubblebustin, From the same article:
“As proposed, taxpayers would be entitled to a credit or refund only if they can document that the withholding agent actually deposited the amount withheld with the IRS. ”
We can’t even get our “foreign” banks to verify whether our private data is being forwarded to the IRS. According to the above article, if taxes are withheld by our Canadian banks, we would require documentation from them proving that the amount withheld was deposited with the IRS in order to collect our refund. Good luck! This is when I shake my head and say “this is bullsh!t”.
@Marie,
>For US investments, not Canadian or foreign. Correct?
Yes but many funds would contain American companies. It’s one of the major games in town.
@Neill
I’m sure there has to be a way to avoid all US investment if one desired. The question is, will you be required to fill out these forms if your investments are strictly Canadian. Are these forms required for a basic chequing account?
If you’re buying or selling stocks over the NYSE, these trade in the US, so the W8-BEN is a reasonable request. If you’re limited to purchases over the TSX, completion of a W8-BEN is not reasonable.
I’ve had a trading acct with RBC Direct back to 2007. I believe they asked me to fill out a W8-BEN for my non-registered accts– personal and corporate. They have to be renewed every couple of years. I don’t believe I’ve ever been asked to fill one out for a registered acct.
RBC Direct has provided excellent customer service over the years. The W8-BEN form predates FATCA– I haven’t stressed over it.
@Marie @Neil– I purchase ETFs from Vanguard Canada in my non-registered accts. Their ETFs that hold US equities are Canadian domiciled– they trade over the TSX. They are safely away from US govt hands. Vanguard Canada has lots of ETFs that hold non-US companies. They have excellent products– their fund fees are among the lowest available anywhere in Canada.
ETF may have to do a due diligence separate from brokerage
“6.44 If an investment dealer or other financial institution intermediates the purchase for a client of a unit in an exchange traded fund or a closed-end fund (in the remainder of this paragraph, the term “ETF” is used to refer to both), that regularly trades on an established securities market and the unit is registered in nominee-name on the books of the ETF, the ETF would not be considered to maintain a financial account. If, however, a purchase results in a unit being first registered in client-name on the books of an ETF on or after July 1, 2014, the ETF would be considered to maintain a financial account held by the unit holder (but only in respect of the 2016 reporting year and subsequent years). Since an ETF will have outcomes similar to a traditional mutual fund beginning in 2016 in connection with units held in client-name, the guidance on coordination between funds and the fund dealers set out in paragraphs 5.7 to 5.13 may be of interest. ”
http://www.cra-arc.gc.ca/tx/nnrsdnts/nhncdrprtng/gdnc-eng.html
The ETF is more or less a flow through if it hold foreign USA assets it is the same as a Canadian mutual fund with USA assets They do their due diligence for 2016.. As long as you have a CLN even if you have not done exit taxes you are safe in Canada..
I once saw a Canadian index fund with a small foreign income source.
‘the actual US form (which has, at the top “Department of the Treasury, Internal Revenue Service”, so that any signature is “under penalty of perjury” to the US).
I don’t intend to perjure myself or in any way lie,’
When you have to perjure, do it.
IRB 2005-14 requires you to sign preprinted jurats unaltered regardless of whether they’re true or not. Oddly the IRS never pointed me to IRB 2005-14 but I found it accidentally. An IRS employee told me over the phone that alteration of jurat is automatically considered frivolous. A Tax Court judge told me the reason: IRS employees are poorly trained, so honest declarations confuse them, so honest declarations impede the administration of US taxes. Furthermore the US DOJ complained to four other courts that I altered the jurat. Court of Federal Claims agreed that honesty is a reason for the IRS to refuse to refund overpayments (withholding). Court of Appeals for the Federal Circuit refused to rule on whether honesty is allowed or not — they punted by blaming me for failing to fabricate a social security number for my wife (the SSA never granted nor rejected the SSN application and the IRS had rejected ITIN applications up to that point). Anyway, if your facts are complicated, you’d better not report them. Estimate and guess what you have to estimate and guess, but sign the declaration saying they’re true and correct to the best of your knowledge and belief.
26 USC section 7206 punishes willful perjury. It is silent on the matter of unwillful perjury. When the US forces you to commit perjury unwillfully, you are safe in complying
From the other thread: “The QI program started in 2001; it was supposed to apply to US sourced income.”
In 2002, TD Waterhouse in Canada applied it to Canadian sourced income in Canada. They double withheld: correct withholding of Canadian income tax since I’m a non-resident of Canada, plus withholding of US withholding, from Canadian sourced income.
At that time the IRS was accepting some questions through their web site and they answered by e-mail. I asked if my employer should also double withhold from my salary, Japanese income tax plus US withholding. The IRS said that if my employer had a US affiliate then they should. Luckily my employer didn’t have an affiliated company in the US. (Though by coincidence the company’s president was an illegal immigrant, entering Japan for consecutive 90-day periods as a tourist on a US passport. And by coincidence the company issued falsified salary reports, which the Japanese government and court know to be falsified, but the IRS coerced me to declare under penalty of perjury that I believed one to be true and correct.)
From the other thread: “There would be no reason whatsoever to ask LM to fill out a W8BEN for CDN investments.”
TD Canada Trust’s FATCA page provides a download for their substitute W-8BEN, and instructions to attach a copy of proof of another citizenship (such as Canadian) and copy of CLN. Their page ALSO says they don’t accept scans or faxes, they only accept originals, so I don’t know if they consider a copy to be an original. So please don’t tell them that I printed files from scans that I’d taken earlier. Anyway, TD Canada Trust’s page doesn’t say if the requirement depends on the kind(s) of account or not.
It’s even worse than what the Taxpayer Advocate warned: “In addition to the regulatory changes being contemplated by the IRS, all U.S. taxpayers who file a Form 1040NR requesting a refund of amounts withheld pursuant to FATCA, even those supported by the requisite Form 1042-S, will have the request frozen for up to 168 days, if not longer, while the IRS attempts to match applicable documentation and satisfy itself fraud has not occurred.”
As mentioned elsewhere, everyone should file two Forms 4506-T every year, one to get a transcript of account (which resembles CRA’s assessments) and one to get a transcript of Forms 1099 and 1042-S. I learned about 4506-T by accident in 2013, too late to get transcripts for the most important years. But anyway, the IRS reported that they had no records of Forms 1099 and 1042-S even for years after Monica Hernandez was arrested.
So IRS efforts to match records are going to fail. Monica Hernandez was not working alone and fraud continues.
Using somebody else as a prête-nom works (if that person is not a US person!)
FFIs don’t understand IRS forms, nor are they particularly interested in them. All they are concerned with is shifting the risk away from themselves to the customer. For an FFI to provide a “substitute” form, they would have to understand what the forms mean and take on the risk that their “substitute” form may be deemed inadequate in the eyes of the IRS. That is, for them, completely unacceptable. Instead, they simply pass on those IRS forms to their customers whether they apply or not, and, in all non-English speaking countries, in a foreign language.
I do not, nor will I ever, hold any kind of financial assets in USD or traded in the USA. Yet I am always asked by my local banks to fill out a W-8BEN. One bank even asked me to fill out a W-8CE, which I had never even heard of until then. That form is for (among other things) certification of “covered expatriate” status, which I do not have.
These forms are a farce, and quite likeliy illegal, however it is impossible to do banking (in Germany) without providing them.
My experience is that the W8-BEN is absolutely required. Yes, I agree, that it’s terrible and disgusting. We have never been US citizens, but were US Green Card holders until we gave them up in 2011. A year ago, we sold our holdings in a mutual fund, at a loss, and the financial institution withheld 30% of the holdings. NOT the gain, as there was no gain, but on the entire holding, that was paid with after tax dollars, and on which we had suffered a loss! Their argument was that our W8-BEN had expired! This form is only valid for 3 years, and then a new one is required. We fought it with the FI, and did eventually get the money paid back to us, but needless to say, it was a battle we would rather not have had to deal with, and it is despicable that this can happen.
A separate incident involving the W8-BEN form: Now a different FI, rejected our W8-BEN form. They wanted us to explain a US address that they had in their file, and if we could not explain it, they would have to withhold 30% of our assets! We have not had a US address in over 10 years, and we never had a US address while dealing with this particular financial institution. We asked them to give us the address, so that we could figure it out. They refused, saying that this was confidential information, that they were not allowed to share the address they had in their file for us!! Logic I most certainly cannot understand!! To this day, we do not know what address they had in their file. We finally ended up writing an affidavit with a lawyer, stating that we have no US address and don’t know why they would have one in their system. Finally after sending the affidavit, our W8-BEN was accepted.
The W8-BEN just adds to the injustice of FATCA, it is all part of it, and I think that as long as we have FATCA, we will have to deal with the W8-BEN. Having gone through the consequences not having a W8-BEN on file (allegedly), and having to go through the pain of trying to recover our money, I would rather complete the W8-BEN form, than go through the pain of not having one.
“We fought it with the FI, and did eventually get the money paid back to us”
Did you get it from the FI or from the IRS?
I’m still fighting with the IRS. 9 years and counting.
A few weeks ago the IRS told me they purged their file, for which legally a negative inference is warranted against the IRS:
Estate of Wilshire v. US, No. 1_07-CV-00377 (SD Ohio 2008)
http://scholar.google.com/scholar_case?case=10709635221990403329
but honest people get abused by courts even worse than by the IRS.
“The W8-BEN just adds to the injustice of FATCA”
It’s the other way around W-8BEN existed years before FATCA.
@DJ “We asked them to give us the address, so that we could figure it out. They refused, saying that this was confidential information, that they were not allowed to share the address they had in their file for us!!” Of course in Canada under the PIPEDA, you have a right to know what private information a bank is keeping on you and you can also demand that they destroy it. Of course, some private information is necessary to do business, and that is the only information they can keep–on a need to know basis–but with your permission.
When opening an account with Scotia iTrade a few years ago, I refused to fill out W8-BEN account and they still opened the account. Clearly, if you only trade in Canadian equities, it is not an issue. If receiving dividends and other kinds of income from the US, you will pay a much higher withholding tax.
The fact that the banks are demanding W8-BEN and will refuse to trade for you is CYA on their part. Banks have become strident and insolent as result of FATCA.