Saturday, November 10, 2012

Canada negotiating on FATCA

Possible advancement on the FATCA front?  From Davies Ward:
The Canadian Department of Finance announced on November 8th that negotiations are being held between Canada and the United States on an agreement to improve cross-border tax compliance through enhanced information exchange under the Canada-United States Tax Convention. The changes would support the provisions of the United States Foreign Account Tax Compliance Act (FATCA). 
The announcement is welcome news to Canadian financial institutions and investment funds. They have been waiting to see whether they will be required to enter into individual agreements with the U.S. Internal Revenue Service to avoid becoming subject to the onerous new withholding taxes FATCA will impose on non-participating financial institutions. ...
The announcement does not include any details ... The talks appear to be in their early stages, as is evident from the fact that Canada is not mentioned at all in a separate announcement released by the U.S. Treasury Department on the same date. 
No details, early stages, who knows what will happen.  I am not sure why we are still in early stages when we apparently had the same news six months ago and nothing seems to have moved since then; then again, I can't find the Nov 8th 'announcement' of which DWVP speaks, so I am working in the dark here.  Here, however, is the US Treasury's press release.  It says:

The U.S. Department of the Treasury today announced that it is engaged with more than 50 countries and jurisdictions around the world to improve international tax compliance and implement the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act (FATCA). 
 ...The Treasury Department has already concluded a bilateral agreement with the United Kingdom.  Additional jurisdictions with which Treasury is in the process of finalizing an intergovernmental agreement and with which Treasury hopes to conclude negotiations by year end include: France, Germany, Italy, Spain, Japan, Switzerland, Canada, Denmark, Finland, Guernsey, Ireland, Isle of Man, Jersey, Mexico, the Netherlands, and Norway.
So either DWVP missed the mention of Canada or the US added it in later.  If the latter, that's also very interesting.  Davies Ward has this cute little picture to denote what negotiating with the US on FATCA looks like, but somehow I feel like this might not  capture the mood, quite, so I added a caption to help it along:

Its possible the lady on the right plans to turn that finger-bang on
her smiley-faced compatriot if things don't go well here.
Recall that the Finance Minister has been very vocal in his opposition to FATCA.  About a year ago, KPMG reported:
... Jim Flaherty has sent a letter to several major U.S. newspapers expressing Canada's concerns about the far-reaching implications of the extraterritorial U.S. Foreign Account Tax Compliance Act (FATCA) and the "nerve-wracking" effect that the Foreign Bank Account Report (FBAR) reporting rules has on Canadians. The letter, dated September 16, 2011, criticizes the broadness of the U.S. rules that would essentially cause Canadian banks to become "extensions" of the Internal Revenue Service (IRS). Flaherty also notes that the rules raise privacy concerns for Canadians who may not be aware that they needed to file U.S. tax returns. 
It is unclear what effect this Canadian political pressure may have on the U.S. administration of the reporting requirements and penalty regime that apply to Canadian residents. ...
Not much effect, I think-- it looks like the US will plow ahead and if you want an agreement you'll have to go knocking and then likely have to give something up to get it.  As I have said before, in the case of Canada, which already shares tax information on an automatic basis with the US, I am not sure what sorts of concessions the US means to extract here.  It is possible that the concessions could be unrelated to tax--it could be anything, really, bringing FATCA agreements fully into the category of the age-old practice of using unilateral regulation as little more than a means for diplomatic strong-arming.  


  1. A couple of more tidbits:

    There is now an outstanding request for comments from the Department of Finance Canada. Note the following sentence:

    The purpose of this bulletin is to inform persons whose interests are affected by the provisions of FATCA that the Government is actively seeking a solution to issues raised by such provisions. The Government of Canada has received input from many INDIVIDUALS and groups in relation to the implications of FATCA.

    So clearly the government is acknowledging the number of complaints that have already been recieved is significant and I know for a fact(through talking with several people preparing submissions there will be more).

    Clearly I do not doubt the level strongarming over this issue. The problem as I see it is what isn't being dicussed is the US has a very poor track record of strongarming the Canadian judiciary. This can be seen in the Harden, VandeMark, and Chua cases all of which of had different circumstances(and in the Van de Mark and Chua cases did even directly involve the IRS). As I like to think of it the IRS and US Government is 0 for 3 in Canadian courts in terms of enforcing US tax law in Canada. In Harden they were unsucessful in sending their own lawyers to Canada in Van de Mark they were unsucessful in bringing pressure through TD Bank and in Chua they were unsucessful in trying to use Revenue Canada on their behalf. Could a FATCA IGA being struck down in Canadian Court make it 0 for 4. What happens if the IRS goes 0 for 4 in Canadian court.

    As a side project I have been trying to find out any public information of what became of Esperenza P Harden, Kenneth Van DeMark, and Judy Chua. In the latter two I have not had much luck although I found out what some of lawyers involved in the Chua case are doing. I believe though the webpage linked below is actually that of Esperenza P Harden granddaughter.

    I actually thought about sending an email asking the woman(Denise Paige)whether her grandmother was the same Esperenza P Harden of tax law fame and whether she realized how big of case that is still in international law(notwithstanding the existence of the revenue "rule" for hundreds of years prior)

  2. Additional:
    A more interest comment is that of the Australia Treasurer who said the following earlier this week:

    An intergovernmental agreement would also improve existing reciprocal tax information sharing arrangements between the Australian Taxation Office and the United States Internal Revenue Service. This will help ensure Australian tax laws are effectively enforced so that Australian businesses and individuals who pay their fair share of tax are not disadvantaged by those who seek to evade their tax obligations.

    The Government will continue to work with Australian stakeholders to ensure that their interests are reflected in discussions with the United States Treasury and to ensure there are appropriate safeguards in any future bilateral arrangements to protect the LEGITIMATE interests of Australian CITIZENS.

    Now clearly the first part is about obtaining information on Australian resident with bank accounts in the US. However, what exactly are appropriate safeguards in any future bilateral arrangement to protect the legitimate interest of Australian citizens. Note the emphasis on Australian "Citizens" not Australian Individuals or Australian Businesses as in the first paragraph. Clearly it means "something" I don't think it is just filler but does "future" bilateral arrangements mean the agreement to implement FATCA or some future changes in the US Australia Tax Treaty(i.e. savings clause). I get the feeling by using term Australian Citizens(who I am assuming could include dual AUS-US and AUS Green Card Holders) Australian Treasurer Wayne Swan is somehow trying to mark out territory. I don't think the legitimate interests of Australian citizens is solely related to for example that any data sent by Australia to the US must remain confidential and only be used for tax purposes(General requirement in treaty exchange of information).

    As I have said earlier citizenship based taxation may have been more acceptable in an era of singular nationality but once the bridge has been crossed to accepting dual nationality there are "legitimate" issues as the Australian Treasurer uses the term to be discussed.

  3. More news:

    A deal will be done be "signed" by the end of the year unless perhaps big stink is raised. There is a request for comments I linked to below.

    In full disclosure I am encouraging people concerned to call the phone number listed and I am glad to say that several already have. The person handling the file from what I heard was somewhat unaware of people's concerns and making note of them. One of the problems in the Canadian context with this issue as I see it is that the protest against FATCA is coming from British Columbia and New Brunswick predominately and in Canadian politics it is some times hard to translate political viewpoints from places like BC and NB into language that can be understood in the Toronto Ottawa axis.

    I continue to bring up FATCA because almost no one I have talked about it and is effected by it has anything but absolute hatred towards. Second the people affected by it do have real political clout in places like Western New Brunswick, Vancouver Island, and British Columbia in general. There are both conservative and NDP mp's that according to Stats Can could have up to a third or more of their constituents effected by FATCA. Think John Williamson of NB, Jean Crowder of BC, Denise Savoie of BC, Bernard Valcourt of NB, Elizabeth May of BC(herself a US Person under FATCA despite not carrying a US passport for decades) and Alex Atamenko of BC. The problem is I am not sure despite assertions to the contrary offical Ottawa(or for that matter DC) understand the situation out in these places. To a lot of these people there is no "deal" to be cut. Given that legislative changes are needed to implement FATCA in Canada that must be voted on in Canada by the likes of Williamson, Crowder, and May and given to what I believe in time will be the overwhelming opposition of their constituents I think any one of them even alone could cause major problems. Unfortionately I get the feeling the official at the Department of Finance dealing with this has not been able to see that far down the chessboard as I have.