Blaze and I have sought advice on how best to proceed with a legal challenge to Canada’s proposed IGA legislation to implement FATCA.

The advice received from legal people we consulted is that the first step should be to obtain a “warts and all legal opinion” on the merits of a challenge and that Joe Arvay, given his expertise and credibility, is the one to do this.

Please provide your comments and suggestions to this proposal, originally posted on Sandbox:

http://maplesandbox.ca/2014/possible-charter-challenge-legal-opinion-needed-and-funds/

“As most of you know, the possibility of a challenge under the Canadian Charter of Rights and Freedoms has been discussed for some time.

With the signing of the IGA and proposed legislation to override existing Canadian laws, we need to determine our next steps.

http://www.fin.gc.ca/treaties-conventions/pdf/FATCA-eng.pdf

http://www.fin.gc.ca/drleg-apl/2014/can-us-eu-0214l-eng.asp

Prominent Canadian constitutional lawyer Joseph Arvay has reviewed the IGA and the proposed legislation. He has recommended as the first step a formal legal opinion to advise if a challenge would have a reasonable possibility of success. In his letter to me (real name and address removed)

http://maplesandbox.ca/wp-content/uploads/2014/02/Mr-Arvay-Opinion-Letter.pdf

Continue reading →

Comments on the legislative proposal can be submitted to the Department of Finance at IGA-AIG@fin.gc.ca

or to the address below. The closing date for comments is March 10, 2014.

Tax Policy Branch: Department of Finance
140 O’Connor Street Ottawa, ON K1A 0G5

My submission is below. Some will say it is too wordy. Some will say it does not cover everything. I know that and I could make it even more wordy, but I am addressing only one of the unjust aspects of allowing to stand as is the FATCA IGA signed by my Government of Canada.

I am more than weary from the one-way conversations I’ve had with most of my previous correspondence. I hope that this announcement means the Government of Canada really is going to listen to my, your, our concerns, the very US Persons in Canada who become the collateral damage of US FATCA combined with US citizenship-based taxation.

Continue reading →

MacKenzie to provide Cdn fund investors with information to file IRS #PFIC forms http://t.co/YDV7A4SsnD – Smart business move!

— Citizenship Lawyer (@ExpatriationLaw)

Fidelity CA takes lead in Cdn fund industry by making it possible for investors to make QEF election for #PFICs – http://t.co/64XOpOxvm9

— Citizenship Lawyer (@ExpatriationLaw)

A Canadian received a message from his financial adviser that included:

Mutual Funds, U.S. Taxes, and Your Clients

PFIC

With the new rules coming into place, we are the only firm I know of that is providing the ability to file a QEF election for the 2013 tax year. Therefore if you have any clients with us that are US persons and file US taxes, we have the ability to provide Annual Information Forms for all their holdings that they can use in conjunction with Form 8621 to file a QEF election with the IRS.

We can provide Annual Information Statements for all of our funds. In providing these statements, we simply need to know which of your client’s need them; since we have no way of knowing whether your clients are “US persons”. Once we know which of your clients’ need the Annual Information Form, we will prepare and send them to you.
The bottom line is:

Fidelity Canada appears to be the second Canadian mutual fund company to market their Canadian mutual funds in such a way that investors can avoid the default S.1291 confiscation taxation scheme. Fidelity is providing the “paperwork” which allows fund investors to take either the “QEF” election or “mark-to-market” election (which are the least punitive of the three PFIC elections).

As you know a “critical mass” of opinion takes the position that Canadian mutual funds are PFICs. A mutual fund, deemed to be a PFIC, can be taxed in three different ways. Those who are interested are invited to read our submission – PFICs and the taxation of Americans Abroad – to the Senate Finance Committee. Leaving aside the technicalities, this “co-operation” by Fidelity makes it possible for investors to get most of the benefits of investing in Canadian mutual funds (although they will in some cases have to pay tax on money they have not received). It’s important to note that this does NOT give Canadians with “U.S. taint” the same benefits as other Canadian residents (they will still have to pay tax on distributions they do not actually receive). But, it will allow them to avoid the confiscatory effects of the S. 1291 rules.

These actions by MacKenzie and Fidelity will force the other fund companies to follow.

Highlights from the Fidelity announcement include:

Fidelity is helping investors comply with U.S. PFIC tax rules

Fidelity knows there is concern among investors about the U.S.Passive Foreign Investment Company (PFIC) rules and is taking a leadership position in the industry by making this option available to Canadian investors who are classified as “U.S. persons” under U.S. tax law. These rules could significantly affect “U.S. Persons” who hold Canadian mutual funds, so we are working hard to provide you with all the available information about these complex rules.

We believe it is important for those who may be affected by these rules to have the knowledge necessary to make informed decisions. However, we also believe that investors affected by these rules should not make changes to their Canadian holdings without first speaking with their advisers and a U.S. tax specialist.

Fidelity will provide PFIC Annual Information Statements for all of our mutual funds for the 2013 tax year. We expect to be able to provide PFIC Annual Information Statements for those funds prior to the April 2014 U.S. tax reporting deadline for individuals.
This appears to be a response (at least in part) to the new FATCA reporting requirements on individuals which require that mutual funds be reported to the IRS.

Conclusion: By serving the IRS, the Canadian mutual fund companies are serving their customers.

Cross-posted from citizenshipsolutions.ca

Funds Europe reports on the decision by UTI International (Singapore) to “remove” its American investors because of FATCA’s compliance burden:

http://www.funds-europe.com/news/13346-we-had-to-exit-americans-because-of-fatca-uti-international

UTI International (Singapore) chief executive officer Praveen Jagwani says the asset manager had to remove American investors because of the compliance burden Foreign Account Tax Compliance Act (Fatca) brings.

The regulation requires financial institutions to use enhanced due diligence to identify US citizens that have invested in either non-US financial accounts or non-US entities.

Fatca, which will become effective this year, was launched with the intention to keep US citizens from hiding income. Asset managers face severe consequences if they fail to enter an agreement with the Internal Revenue Service.

The intent behind Fatca is to keep US persons from hiding income and assets overseas.

Speaking at a recent Funds Global Asia roundtable in Singapore, Jagwani says Fatca is the single most difficult act of regulation for the asset management industry.

“We offer a Guernsey-domiciled Indian equity fund and because of six American investors, our compliance cost has gone up significantly,” Jagwani says.

“In order not to penalise the remaining investors, we have unfortunately had to decide to exit the American investors.”

UTI International is a subsidiary of one of India’s largest asset managers, UTI Asset Management Company.

Margaret Harwood-Jones, managing director and global head of investors and intermediaries, Standard Chartered, another roundtable participant, says there is no place in the world where businesses can hide from the impact of any foreign regulation.

“Even when it is only half a dozen investors buried somewhere in a particular fund, they have to be fully identified and properly treated in order to comply with Fatca,” Harwood-Jones says. “The obligation to report, to comply with the plethora of new regulation is important yet onerous indeed.”

Derek Burney and Fen Hampson at IPolitics write:

Two recent developments threaten to undermine Canada’s hard-earned credibility as a prudent financial center.

The first is our apparent readiness to go along with the with ex-post facto fad of new banking regulations without due consideration being given to why such reforms are actually needed

As former Bank of Canada Governor, David Dodge, recently observed in a meeting with the Calgary School of Public Policy (Feb. 11 Financial Post), many of these changes will impose costly new rules on the Canadian banking sector for a problem that was not of our own making and are directed primarily at punishing miscreants in Europe and the US rather than providing greater stability to global financing.

Canadians will ultimately bear the brunt of these reforms in higher banking fees and charges.  The prevailing conventional wisdom is that the financial crisis of 2007–09 stemmed from the absence of a sensible regulatory framework and specifically from the failures of banks, notably those in the U.S. and Europe, to follow prudent banking practices. Any remedy should therefore ensure that the cost of future failures falls on those institutions that neglected fundamental principles of prudence. It should certainly not penalize further taxpayers who were obliged to support expensive bailouts. In any event, ‘one-size-fits-all’ prescriptions are not the best antidote to such problems.

The second deeply troubling development is the “U.S. Tax Compliance Act (FACTA)”. As of July 1, Canadian banks will be obliged to scrutinize all accounts exceeding $50,000 to determine if they are “U.S. reportable”.

This new requirement is a blatant example of extra-territorial application of US law by the IRS, an agency of the U.S. government that is hardly a beacon of ethical propriety these days. The sheer power of the United States may be sufficient to oblige compliance – ‘going along in order to get along’ – but one is left to wonder why our government should reward the U.S. government on the backs of Canadians. Isn’t it enough that we pay billions to build a bridge, including the land on which U.S. Customs facilities will be built, connecting Windsor to Detroit or that we also contemplate the purchase of hugely expensive, U.S. fighter jets without any practical, bilateral dividend in return. Perhaps we should propose a similar form of scrutiny on U.S. financial institutions. Sauce for the goose no less.

Read the full article here.

Bloomberg is reporting today that the Senate Permanent Subcommittee on Investigations will be holding a hearing on a crackdown on offshore tax evasion. According to Sen.Carl Levin, offshore tax avoidance costs more than $100 billion a year. The hearing will focus on the status of ongoing investigations into Swiss banks and their US clients which include Credit Suisse Group AG and 14 other banks.

Since 2009, over 70 taxpayers and nearly three dozen bankers, lawyers and advisors have been charged with cheating the IRS through hidden accounts. Through the OVDP and OVDI programs, more than 43,000 Americans have avoided jail time and have paid $6 billion in penalties, fines and back taxes. Many leads from these participants have resulted in the building of criminal cases that previously, would have avoided detection due to Swiss privacy laws. Lawyers indicate that these leads are generating examination of tax havens outside of Switzerland.

Lawrence Horn, a tax attorney at Sills Cummis & Gross in Newark, New Jersey said “If I were Senator Levin, I’d ask the Justice Department, ‘You did this program with the Swiss and 106 banks signed up for non-prosecution, so will you take that prototype to other countries with a history of unreported bank accounts, such as Israel, India, Singapore and Hong Kong?”

The schedule for CSpan is not yet up for February 26. If you’ve got the February blues, maybe you can cheer yourself up watching Uncle Carl in action!

Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts
Dirksen Senate Office Building
February 26. 2014
09:30AM – 05:13PM

Attorney General Eric Holder is calling for states to amend their laws to allow felons to vote once their debt to society is paid. Among his assertions is the idea that those who are permitted to vote after they have served their sentences are less likely to reoffend.

The article makes strong arguments for fairly assessing the issue of race given the disproportionate number of African Americans caught up in the penal system. I am not sure this relates well to comparing the plight of felons to ours, other than many people are simply prejudiced. Given the fact that states have jurisdiction over voting privileges and statutes vary considerably, one can imagine the long protracted process entailed in such amending. The state of Delaware, that domestic haven of tax abuse, also changed its law to permit some felons to vote once they’re out of jail, but not if the felon is a murderer, a sex offender, or guilty of felony bribery. Seems ironic that such a state would equate felony bribery with murder or sex offences. However, one can hardly imagine a legitimate reason that would deny these individuals their rights once they have paid their debt to society. Alexander Keyssar, author of The Right to Vote (2009) states “[d]isenfranchisement for [serious] crimes had a long history in English, European, and even Roman law, and it was hardly surprising that the principle of attaching civil disabilities to the commission of crimes appeared in American law as well.” He also alleges that “disenfranchisement, whether permanent or for an extended period, served as retribution for committing a crime and as a deterrent to future criminal behavior.”

I see some basic comparisons to the unfair situation expats experience if they wish to exercise their constitutional right to vote. According to AARO those rights have often been “thwarted by inconsistent state regulations governing voter registration, by late arrival of ballot applications and the ballots themselves, and by lack of clear and timely information on how to vote.”  AARO has been working for more than three decades to make the system easier and more efficient, and to ensure that overseas voters are aware of their rights.” The current situation results in nothing less than taxation without representation. None of our elected representatives seem to grasp this inequity. Certainly the Homelanders, along with all their other misperceptions, wrongly assume that this right is exercised and undeserved by those “tax cheats living abroad, not paying their fair share.”

This makes me wonder if expats should ask AG Holder to challenge the system that limits their ability to vote effectively. After all, if they want to penalize us to high heavens, the least they could do with all that undeserved money, is to count us!