What is REALLY in the U.S.-Canada Tax Treaty

The current version of the The Convention Between Canada and the United States of America was signed September 26, 1980.

Since then, there have been 5 protocols to amend the Treaty: 2nd-June 14,1983; 3rd-March 28 1984, 4th-July 29, 1997 & 5th-September 21, 2007.(dates signed)

In Canada, a treaty is not approved per sé by the Parliament. This was somewhat of a surprise to me, due to witnessing the recent chain of events with the signing of the IGA on Feb 5, 2014, watching the (limited) debate process leading up to Royal Assent on June 19, 2014. Given the fact it was very clear the CONs intended to approve it, I had no idea that all they were doing was dealing with the implementation of it. It appears that Canada treated the IGA as if it were a Treaty:

Canada’s Approach to the Treaty-Making Process

After signature of an international treaty, once Canada is ready to be bound by it, a document is prepared establishing that the formalities for the coming into force and implementation of the treaty have been completed and that Canada agrees to be bound by the treaty. More formally, Cabinet prepares an Order in Council authorizing the Minister of Foreign Affairs to sign an Instrument of Ratification or Accession.13 Once this instrument is deposited with the appropriate authority, the treaty is officially ratified. At this point, Canada is bound by the treaty as soon as it comes into force (if it is not already in force).14
In January 2008, the federal government announced a new policy17 to enhance parliamentary involvement in the process by ensuring that all treaties between Canada and other states or entities are tabled in the House of Commons before ratification. The Clerk of the House of Commons distributes the full text of the agreement accompanied by a memorandum explaining the primary issues at stake, including subject matter, primary obligations, national interests, policy considerations, federal-provincial/territorial considerations, implementation issues, a description of any intended reservations or declarations, and a description of consultations undertaken. The House of Commons then has 21 sitting days to consider the treaty before the executive takes action to bring the treaty into effect through ratification or other preliminary measures, such as introducing legislation. The House has the power to debate the treaty and to pass a motion recommending action, including ratification; however, such a vote has no legal force.
 

One thing that this demonstrates is that Canada most definitely was in compliance with the terms of the IGA on the day it was signed. I am not sure this was known by some members in Parliament. There simply was no need to rush the implementation of the IGA. Why the big hurry? Yet the CONs did this in spite of recommendations to spend more time (as per Prof. Allison Christians, Prof. Arthur Cockfield and John Richardson).

Remember this?
 

Murray Rankin: Mr. Richardson, in your remarks, you say there’s no reason to rush this through, yet you’ve heard from Mr. Hannah that there would be problems with the 30% withholding tax and the access by banks to the foreign capital markets in the United States. What’s your response to that?

Mr. John Richardson: He’s completely wrong. The obligation is satisfied upon entering into the IGA. That has been done. The agreement states very specifically that it doesn’t take effect until Canada gives notification.


Non-CON MPs picked up on the idea that a better agreement could have been negotiated and agreed that it was obvious more time should have been spent dealing with it as a standalone item. As was seen here, the Senate certainly saw a lot of problems with the IGA.

The point of this post will be to look more closely at the interaction between the Treaty, the ITA, The Privacy Act and PIPEDA. Unfortunately, while doing this, I discovered something which I believe, has not been known by most of us but which, in fact, has been in the Treaty all along and why the government claims the IGA is authorized by the Treaty. This begs the question, WHY then, was it necessary to have the IGA; and/or why was it not added as a protocol as other changes have been made since 1980? I am still sure Prof. Christians is right; the IGA is a tax-treaty override and it is not a valid document. But I want to understand how these 4 documents and timings connect to produce the mess we are in today.

I recently had a second huge OMG moment. For a reason I cannot currently remember (sigh, definitely a seniors’ moment) I had started reading the ITA and the Tax Treaty. It seemed a couple of timings were odd and I decided to re-read the Tax Treaty thoroughly. I wondered, why on earth does the government claim the IGA is authorized by the Treaty? I couldn’t see anything differently than I ever had. So in searching, I came across this:

Canada-US Tax Treaty A Practical Interpretation 3rd edition 2009, © CCH Canadian Ltd.

488

This phrase, “a treaty country may not argue that its domestic bank secrecy laws or other similar laws allow it not to exchange information…” caused my 2nd huge OMG moment. How could it be that this was signed while PIPEDA & the Privacy Act were in force? OMG this is the worst possible thing I could come across. Please tell me this is NOT true.

I finally noticed I was not looking (and apparently never have) at the most current version of the Treaty. I often will bookmark something and never even think about it again. However, unless one focuses on the year and/or which protocol, it is completely possible to miss what was added.

In the IGA we find:

Whereas, Article XXVII of the Convention Between the United States and Canada with Respect to Taxes on Income and on Capital done at Washington on September 26, 1980, as amended by the Protocols done on June 14, 1983, March 28, 1984, March 17, 1995, July 29, 1997, and September 21, 2007 (the “Convention”) authorizes the exchange of information for tax purposes, including on an automatic basis;

 

So just where IS authorization to report bank accounts?

Looking to the Treaty, the fifth protocol was signed on September 21, 2007,and came into force December 15, 2008. Interesting that the Swiss Bank debacle was was heating up and OVDP hadn’t even started yet – but was a mere 3 months away. (March 26, 2009). In fact, if you look at the document just linked to regarding the debacle, you will see the lawyer references the “regular” voluntary disclosure program that had been in place for many years. Not a whiff of what was about to come. FATCA hadn’t even been introduced yet. I cannot imagine for even one minute though, that it is coincidence these Treaty changes are unconnected to all of what followed. And yet, back in 2008, I sure don’t remember hearing anything about bank account information being fair game, not in the press, not from the government, not from anywhere. Do you? Can you believe we are just now witnessing the State Department attempting to let people know of their tax obligations? The whole situation is still, simply unbelievable.
 
In Article 23
Exchange of Information we find:

N.B. Article XXVII (Exchange of Information) of the Convention shall be deleted and replaced by the following…………..

3. In no case shall the provisions of paragraph 1 and 2 be construed so as to impose on a Contracting State the obligation: (a) To carry out administrative measures at variance with the laws and administrative practice of that State or of the other Contracting State; (b) To supply information which is not obtainable under the laws or in the normal course of the administration of that State or of the other Contracting State; or (c) To supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (ordre public).

Ok, great, I have always read this to mean that this would prevent any Canadian organization from reporting on personal financial information due to PIPEDA and/or The Privacy Act. I also thought it was the last Paragraph in this Article because I was looking at an earlier version. But look at what follows Paragraph 3:
 

5. In no case shall the provisions of paragraph 3 be construed to permit a Contracting State to decline to supply information because the information is held by a bank, other financial institution, nominee or
person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person.

 
as well as:

6. If specifically requested by the competent authority of a Contracting State, the competent authority of the other Contracting State shall provide information under this Article in the form of depositions of witnesses and authenticated copies of unedited original documents (including books, papers, statements, records, accounts, and writings).
7. The requested State shall allow representatives of the requesting State to enter the requested State to interview individuals and examine books and records with the consent of the persons subject to examination.

 
Sound familiar? Here we have the U.S. saying (in spite of our laws?) in no case could Par 3 be used to protect banks and financial institutions (IOW, honour our laws?). And our goverment signed this? There was no 30% withholding threat in this document. Why on earth would they agree to this? (Remember, this is the Treaty in 2008 not the IGA).

I wondered whether CRA was actually able to access to that information. So I looked to the
Privacy Act where there were Recommendations April 29, 2008 (i.e., applicable because falls after the protocol was signed and before it came into force).
 

Strengthen the provisions governing the disclosure of personal information by the Canadian government to foreign states. Relevant Section(s) of the Privacy Act:

Paragraph 8(2) Subject to any other Act of Parliament, personal information under the control of a government institution may be disclosed ? (f) under an agreement or arrangement between the Government of Canada or an institution thereof and ? the government of a foreign state, an international organization of states or an international organization established by the governments of states, or any institution of any such government or organization, for the purpose of administering or enforcing any law or carrying out a lawful investigation.

This paragraph was directed toward issues of “regulating the movement of goods and people and to combating transnational crimes and international terrorism.”

Further:
 

However, the Privacy Act does not reflect this increase in international information sharing. The Privacy Act places only two restrictions on disclosures to foreign governments: an agreement or arrangement must exist; and the personal information must be used for administering or enforcing a law or conducting an investigation. The Privacy Act does not even require that the agreement or arrangement be in writing. The Privacy Act does not impose any duty on the disclosing institution to identify the precise purpose for which the data will be disclosed and limit its subsequent use by the foreign government to that purpose, limit the amount of personal information disclosed and restrict further disclosure to third parties. Moreover, the Privacy Act even fails to impose any basic obligations on the Canadian government institution itself to adequately safeguard personal information.
As reported in the OPC’S 2002-2003 Annual Report, the Office conducted a preliminary review of 21 information-sharing agreements between Canada and the US. It concluded that only about one-third were reasonably well drafted. To mention just two deficiencies: many of the agreements did not describe the personal information to be shared or include a third party caveat; that is, a statement indicating that the information received under the agreement will not be disclosed to a third party without the prior written consent of the party that provided the information.

 
So apparently the CRA could not, (due to domestic law-the Privacy Act) until changes were made, share banking information even though it was authorized to do so in the Treaty as of 2008. And in addition to revving up the Treaty, changes were being made to PIPEDA long before FATCA came.

This is the first time I have ever felt the Canadian government failed us long before they signed that IGA. They knew this all along; did not alert us beforehand. Yes, it is a US requirement but they knew. And did absolutely nothing to protect Canadian citizens who were about to have their lives completely ruined.

END OF PART I

12 thoughts on “What is REALLY in the U.S.-Canada Tax Treaty

  1. nobledreamer-Tricia Post author

    Here’s another possibility. Due to the Panama Papers, there is speculation the US will back off reciprocity claiming that it cannot allow privacy of its citizens to be at risk. THE VERY MINUTE that happens, every country on God’s green earth should put an immediate halt on FATCA COLLECTING so that nothing can be sent.

    https://renounceuscitizenship.wordpress.com/2016/04/05/why-thepanama-papers-could-implode-the-oecd-aeoi-agenda/

    Reply
  2. nobledreamer-Tricia Post author

    For a thorough grilling of former Minister Oliver, particularly by Murray Rankin in FINA Meeting May 6, 2014

    Hear Mr. Oliver (and that utter moron, Mr. Keddy repeat over and over, this legislation does not apply to Canadians………) over and over and over oh and that gem, “Congress has spoken”

    FINA #32 May 6, 2014
    @16:10:36

    http://www.parl.gc.ca/HousePublications/Publication.aspx?Language=e&Mode=1&Parl=41&Ses=2&DocId=6574148
    @16:10

    It is clear, particularly at earlier points in this video, that former Minister Oliver has barely a clue beyond the talking points. He even said, when Mr. Rankin pressed him to remove this provision for further study, Mr. Oliver replied that it wasn’t necessary because the Justice Department lawyers had proclaimed it was “Constitutional.”

    This video is really, really disturbing. Mr. Rankin has never pushed harder….you will enjoy listening to him……

    Reply
  3. Tim

    To really understand this issue you have to go way back before the 1984 convention to the original 1942 and 1937 treaties. This was the first time Canada accepted the “right” of foreign state to tax its “citizens” residing in Canada. (Applicable to both the US and the Phillipines). So Canada has been failing its citizens since 1937.

    I once actually went back through the Parliamentary debate archives in 1937(or was it 1936) when the first ever tax treaty between Canada and the US was ratified. While there was significant discussion in Parliament about the treaty there was NO discussion on the impact on US citizens living in Canada.

    Reply
    1. nobledreamer-Tricia Post author

      Thanks Tim. It is not difficult to believe there was no discussion of the impact. I suspect, if you will, that then (as well as now) the unfortunate thing is that most of our politicians and civil servants simply do not understand what CBT truly is. Until recently, I have been unfamiliar with the following video of the May 16, 2014 meeting of the Standing Committee of Finance. In addition to the usual talking points which are totally untrue, there is even a conversation about expats “confusing” FATCA and FBAR. It is clear that the politicians themselves do not understand the connection, nor the effect.

      the section on the IGA begins at 16:35:00

      I would like to include information from my comment regarding these inane talking points, so others (if unaware of how to) can refute this nonsense.

  4. Schubert

    And, lest anyone overlook this act of treachery to ALL Canadians by our federal government, it took place basically in 2008 not in 2014. Under Harper’s watch as Prime Minister, albeit at that time with a minority government. Slipped through, probably because it was hidden or rushed through and the opposition parties didn’t have the time, staff, or maybe wits to spot this and consider the implications.

    Bear this in mind, all ye who might ever contemplate ever voting Conservative in the future. Remember on whose watch our country was sold out to the US.

    Will the Liberals do anything about this, if it comes to their attention? Do they care? Is there anything they can do or say even if they want to? I guess we have to stay tuned to find out.

    More and more, it seems to me that the NDP and the Greens are the only parties in Canada that have a grasp on what democracy is supposed to mean in a parliamentary system. Though what they could or would do if they were in power, is mere speculation at this point.

    Reply
    1. nobledreamer-Tricia Post author

      Yes Schubert, in 2008 as I had hoped was clear from this post.  I suspect however, that there is a lot more and a lot earlier (as Tim has alluded to in mentioning the earlier treaties). 

      I don’t know whether any party could ever be relied upon to meet our expectations. It is a huge problem to be so economically tied to the United States. The reality seems to be (in this day in age rather than what it was in our generation’s coming of age) that economics trumps principles. Maybe it always has but at least in earlier days, there was more interplay with other parameters. More sense of ethics, morality and responsibility for the people. 

  5. Lynne Swanson

    Just when I begin to hope it won’t get worse, it does.

    Incredible work Tricia. Although this information boggles my mind, it is clear Canada sacrificed its own laws and rights long before 2011.

    Perhaps when Canada signed it, they thought it only would apply to non-residents of Canada–i.e. Residents of the U.S. but with income from accounts in Canada.

    Have you discussed this with Alison? Her input would be interesting. So would comments from Ginny and John.

    I have no idea how you managed to work through all of that information.

    I think I recalk you telling me once you wanted to get back to playing the piano. Yet here you are spending immense time and energy analyzing an international tax treaty.

    If I read this correctly, the U.S. could actually demand information on ANYONE with banking or financial accounts and Canada would be required to provide it. Is that accurate?

    If so, perhaps we should make that known. Maybe that would finally wake up a sleeping Canada.

    Reply
    1. Tim

      Lynne,

      You are correct in your interpretation that in fact the US could demand banking or other tax info on anyone in Canada regardless of whether they are a US Person and Canada would be obliged to provide it.

    2. nobledreamer-Tricia Post author

      Thanks Lynne. It definitely was not fun nor is what it has lead to and what I am currently exploring having written it. You mentioned the piano which I dearly appreciate you remembering. I can’t really play anymore for two reasons: one, an injury and two, I now live in a highrise. I have taken up learning guitar (just for fun, I am absolutely terrible) as a replacement. 

      I believe what you have said is correct; they can report the banking information of anybody they want. This is “nailed” by:

      Article XXVII
      Exchange of Information

      1. The competent authorities of the Contracting States shall exchange such information as may be relevant for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes to which this Convention applies insofar as the taxation thereunder is not contrary to this Convention. The exchange of information is not restricted by Article I (Personal Scope).

      Article I

      Personal Scope

      This Convention is generally applicable to persons who are residents of one or both of the Contracting States.

       

       

       

       

    3. Lynne Swanson

      Then here is a possible resolution to our lawsuit.

      Bank records of every Canadian will go to CRA to pass on to IRS.

      I”m sure the Prime Minister, the Justice Minister, the Finance Minister and the Revenue Minister would have no objectionto their personal financial records and those of the federal government for which they have signing authority being forwarded to CRA to hand over to a foreign government.  

      Then they would have no objection to IRS passing at information on to NSA, FBI, CIA and other national security and law enforcement agencies.

      Why would they poseibly object?  The Revenue Minister says it’s just an information exchange. She insists it’s secure.  The Justice Minister is defending the lawsuit.  The Finance Minister is silent.  The Prime Minister is best friends with the American President.

      So what was earlier described by Liberals as “dangerous..dirty work..attack on our privacy” is now just complying with the tax treaty.

      Brian Ernewin testifed at Finance Committee that Canada would “make space” in our laws for FATCA (Strange.  As a long time civil servant, I always thought politicians passed laws–not civil servants).

      So I propse records of Ernewein, Trudeau, LeBouthillier, Wilson-Raybould and Morneau be the first to go.

      That should garner some attention.  It could even result in the “space” in our laws suddenly getting filled in.

       

       

       

       

Leave a Reply to Tim Cancel reply

Your email address will not be published. Required fields are marked *

Optionally add an image (JPEG only)