Queen’s University Professor Arthur Cockfield’s provided a comprehemsive report to the Privacy Commissioner in April on FATCA and the Erosion of Canadian Taxpayer Privacy.
In his 36 page report, Professor Cockfield reviews numerous laws, practices and policies. He says:
FATCA and the IGA unduly harm the privacy interests and rights of Canadians in part because detailed financial information concerning hundreds of thousands of Canadians would be transferred to a foreign government for the first time…The Canadian government should not implement the IGA until these privacy concerns are addressed.
Professor Cockfield looks at various laws and practices. He briefly addresses some Charter issues:
The IGA may violate section 15 of the Charter that prohibits discrimination on the grounds of national origin (including citizenship). As discussed in this report, the IGA discriminates against US citizens (and others) residing in Canada by offering unequal treatment of these individuals (see Part VI.G.). A criminal investigation calls for constitutional law protections afforded by the Charter of Rights and Freedoms including section 8, which restricts unreasonable searches and seizures.75 A demand for tax information may also violate an individual’s right to remain silent under section 7 of the Charter.76 If the United States.
Professor Cockfield concludes:
Accordingly, the IGA and the Implementing Act do not protect the privacy rights and interests of Canadians. Bill C-31, the proposed law to implement FATCA that at this writing is before Parliament, needs to be amended to account for these privacy concerns. Until the privacy and other concerns are studied and addressed by Canadian lawmakers,Canada should only transfer FATCA required data associated with U.S. persons who are not Canadian residents. This approach accords with longstanding practice and emerging global information exchange standards. The government should take immediate steps to ensure this standard is codified in Bill C-31. This move would safeguard the privacy rights of Canadians while enabling Canada to work cooperatively on a global scale to ensure that tax evaders—American, Canadian, or otherwise—do not have a safe haven anywhere.
Professor Cockfield is on the panel with me next week, along with a Candian-American tax lawyer based in New York.
Many thanks to Badger for this great find. I did a quick speed read. If Badger would like to do one of her thorough and thoughtful analyses, that would be greatly welcome.
We then started with this video:
The emphasis on how bizarrely the indicia rules could be interpreted began to be a framework of the discussion.
We then heard from Professor Allison Christians. She studied tax law in the US and has an LLM from New York City University. Point was made that this university has some sort of monopoly on producing international tax lawyers.
*At first, FATCA seemed like a reasonable proposal to deal with tax evasion as the US, along with other major European countries, were experiencing a disappearing tax base with the upper tier of taxpapers escaping their obligations.
*10 years ago, OECD began to promote state-to-state cooperation, which again, seemed a “reasonable” reaction to this situation
**Govts don’t want to hit the middle class “coming and going;” i.e., taxing them on their income and then taxing them again on what they spend on consumption. VAT-GST-HST, etc. The upper tier evades and the lower tier has nothing to pay.
* Law pulls everything into it’s lane – i.e., not just the top tier/tax evaders but also everything “foreign”
*PFFI has two choices:
1) seek waivers which results in giving whatever info the bank asks with consent to disclose to the IRS OR
2) close the accounts
*Important to note – this is NOT a CLOSED agreement; the IRS/US has carte blanche to ask WHATEVER they want WHENEVER they want (later)
*A recalcitrant PFFI will have 30% withholding on it’s US source cash flow; interest, dividends and property; property worth $1000 sold for a loss at $800; however, FATCA will withhold 30% of that $800.
*at all levels/pass-through-pmts i.e., not just the PFFI of the US Person but the FFI that sends to the PFFI, etc. Building in a withholding succession.
*The “get out of jail free card” is the IGA
*packaged as information exchange, the current Treaty already covers this; we have low financial privacy with regard to CRA who also has restrictions with what it can and cannot do with our information; we should have a HIGHER right with respect to a 3rd party
*with US and Mexico already having IGA, 2/3 NAFTA is already signed on and danger of Canada being swept in
*We MUST recognize/emphasize that FATCA is INCONSISTENT with our domestic law
*It violates Canadian Autonomy (as opposed to sovereignty); sovereignty is a problematic, binary concept, law of contestation. Use AUTONOMY instead
*it violates a USC’s mobility
*Canadian citizens are not given a choice since the FFI’s have already chosen for us
*THIS IS EXTREMELY IMPORTANT-just like in litigation, the goal is not necessarily to win; we must do what we need to do to ‘WIN THE PUBLIC RHETORIC” i.e., get attention in the PUBLIC COURT
*Revenue Code – can elect to be treated as a US company (or taxpayer); parity
*there is no parity between a dual in Canada and a dual in the US
*Case studies where a statute may look facially neutral but challenged by “intl” law
*? USC violated via Constitution with restriction on leaving?
*who is already over-reacting to IRC-US conservatives
*4 things we can do
1) FATCA = a US treaty override
similar to 1986 Branch Profits Tax
“later in time law” concessions where legislation will trump Treaty
2) doing it now with FATCA statute; PFFI has to waive any rights under ANY Treaty; ex subsidy claim under WTO or NAFTA or FTAA; not just the double-tax treaty
*an attempt to get USC’s abroad to relocate
*an IGA acknowledges the need to waive rights under all treaties; no competent govt would agree to such; FATCA does override the double-tax treaty
*YOU DON’T HAVE TO WIN YOU JUST HAVE TO MAKE IT EXPENSIVE AND GET PUBLIC AWARENESS (ex the reciprocity issue)
2) Possible violation via NAFTA (but trumped by IGA?)
3) NB US has at least 20 FTA’s which amount to defacto subsidies for US institutions
4) International law – customary laws being violated; a sovereign nation has the right to regulate in it’s territory and the power to protect the privacy of it’s own people
*Avoid use of the term citizenship-based taxation; all countries do this with tie-breakers in their treaties; point out US is doing something OTHER than citizenship taxation
*re-think the charade of cooperation; Canada gets nothing, the PFFI gets nothing; pure extraction, no quid pro quo
*under no circumstances should Canada sign an IGA; PFFI challenge any bank signing away their rights who then, sign away yours
*there will be an ongoing cost to saying “NO”
*problem with arguing FATCA violates NAFTA is treaty override-SAY IT IS and DEMAND the government (Canada) to say IT’S NOT
IT IS a tax treaty override and it IS a privacy override-which are we to give up?
*discussion of 6 indicia and truly bizarre ways in which can be interpreted (too long to go into here but Allison did a superb job of showing these, which will be on the video)
Here are some interesting pieces from the news and from personal perspectives.
First is a CTV interview with Queen’s University law professor, Art Cockfield, who has spoken out before against FATCA. He makes the point that the Canadian government needs to be doing more “sabre rattling” over FATCA.
He also makes a point I don’t think I have heard before that he thinks FATCA is illegal under NAFTA (North American Free Trade Agreement.). So, we already know FATCA violates Canada’s banking, privacy and human rights laws and Charter of Rights and Freedoms. Now a law professor says it also is illegal under NAFTA. Why are we still having this conversation? Why doesn’t the Canadian government Just Say No?
Cockfield stresses, like others, that IRS is not going to find much revenue going after Americans in Canada and points to our 70 year effective tax treaty. Our friends is Switzerland will not like the comment he makes about Americans living in a tax haven like Switzerland.
Thanks Saddened for sending me the link to the CTV interview with Professor Cockfield.
Investment Europe is reporting FATCA Rules Could Cause Banks To Cut Back On External Asset Managers. Asset management is the main focus of the article. But, there is an interesting comment at the very end about the situation in Switzerland.
FATCA is already law in the US but negotiations are under way to enshrine it in national law of countries around the world. Jaeger was hopeful that some ‘carve-outs’, or exemptions, could be negotiated for pension funds and custodial banks in Switzerland. However, he thought the possibility of getting a foreign law accepted in a Swiss referendum was ‘unlikely’
I think getting a foreign law accepted in a referendum in any country would be unlikely. However, is a referendum planned for Switzerland?
iExpats is reporting Australia Is Ready to Join FATCA Tax Alliance. This seems to be a model similar to the Europe Five. However, the Europe Five model is dependent on “reciprocity,” which is still far from a done deal because US Bankers Are Fighting The IRS on “reciprocity.”
On a personal level, Victoria tells How I Really Feel About Citizenship Based Taxation. Actually, I suspect Victoria is being quite tactful and holding back from how she “really” feels.
And, here is an Israeli-American Couple’s Letter To IRS TAS. It continues to boggle my mind how people whose lives have been turned upside down continue to be so reserved and polite in their comments.
On another thread last week, Badger wondered what happened to the opinion piece that Maura Drew Lytle of CBA had advised Brock had been submitted to Washington Post.
I sent an e-mail to Maura on Friday. This morning, I received this reply from her.
Yes, we did submit an opinion piece to the Washington Post about FATCA to try to get the attention of U.S. policymakers as part of our strategy to fight for changes to FATCA. They are the ones who have the ability to make changes. Unfortunately, the newspaper did not publish the piece but I have attached it here for your information. Advertising in major U.S. newspapers is prohibitively expensive: this is one of many issues that we work on and we don’t think that it would be the best use of resources. Instead, we are focusing on discussions with the Canadian government and U.S. authorities for a solution that will be more palatable for the situation in Canada. As you’ve seen in my post on the Isaac Brock Society forum, our president also talked about FATCA in speeches this spring and we will continue to look for other opportunities to raise our concerns.
I reiterate again that Canadian banks are opposed to FATCA and are well-aware that FATCA, as it is currently written, may contradict Canadian legislation. Discussions are on-going so it is too early to jump to conclusions about what Canadian banks may or may not be required to do to comply with FATCA. We continue to work hard behind the scenes to find a solution to this issue.
Best regards, Maura
Maura Drew-Lytle | Director, Media Relations and Communications | Directrice, Relations avec les médias et Communications
Maura attached a copy of the opinion piece by CBA President Terry Campbell.