Food for Thought

The paper by Andrew Bonham, cited elsewhere, gives much food for thought. Among the many things that caught my attention was his comment on page 344 regarding the $ 50,000 cap on FATCA penalties.
As he stated, ‘This amount, it is asserted, is just low enough to potentially deter individual challenges, owing to the legal costs that would be incurred in mounting a judicial review application’
He does later state that class actions may be possible.
This made me think of cases where people have gone to Court, putting themselves through a lot of trouble and possibly a great deal of expense over relatively minor amounts of money.
One case that comes to mind is Mullin v. the Queen 99 DTC 748 (T.C.C.) the results of which have had a great benefit for many rural Canadians. Reasonable transportation expenses for medical travel to obtain services not available locally have long been allowed as legitimate medical expenses. In the Mullin case the issue was what reasonable expenses were if one had to travel using their own vehicle. The actual tax at issue was likely less than $ 300.
The result of this decision effectively increased the amount that could be claimed to the mileage rate allowed to Federal government employees (like tax auditors for example). This mileage rate includes not only gas and oil, but the full cost of car ownership including repairs and maintenance, insurance, loan interest and depreciation.
The overall effect is that much larger medical claims could be made than in the past if one’s health problems forced them to travel larger distances to see specialists or obtain the recommended treatment.
So, I think it is possible that someone, somewhere, on principles alone, might challenge a FATCA penalty even if it costs them more than the penalty. However, I would hope that others with an interest in the case would assist whomever it is with the costs of the case.

51 thoughts on “Food for Thought

  1. @Hazy2, food for thought indeed. After reading this, I wondered how much it would cost to mount a charter challenge. I didn’t find that, but I did find an article about 2 Canadians, resident in the US, who launched a legal challenge against the rule that if a Canadian lives outside Canada for 5 years, he loses his voting privileges. That’s actually something I didn’t know, and I wish them good luck with it. The law firm that took on their case, pro bono, is Cavalluzzo, Hayes, Shilton, McIntyre and Cornish. Maybe we should keep the name of that law firm handy!
    I also found a paper (YorkU) on Cost Strategies for Litigants: The Significance of R v. Caron, which says, “It is a rare client with a Canadian Charter of Rights and Freedoms issue who has deep pockets, and deep pockets are required for almost any Charter challenge.” It talks about the hundreds of hours needed and how it is possible to make the opposing side pay advance costs. “…but in which the Supreme Court of Canada went on to hold that such advance costs orders could be granted in any public interest litigation if certain, albeit strict, conditions were met.”
    Might be worth some serious reading and investigation.

  2. A Charter challenge will be very expensive. I will be surprised if will come to that. If it does, I think enough of us can pool our resources to fund it.
    Plus, I am in ongoing contact with Canadian Civil Liberties Association (CCLA). Both the lawyer I consulted and CCLA have advised it is premature for court action until we know what the final regulations are and what Canadian banks and the Canadian governments plan to do. My understanding is CCLA is following this issue, as is Canada’s Privacy Commissioner. So, we not alone.
    @Christophe: It’s wonderful to hear from you. I’m delighted to see you posting in our sandbox.
    Just Me is tweeting almost daily on Twitter. Go to Twitter. Do a FATCA search. You will see regular tweets from Just Me under his real name. I spoke with Just Me a couple of weeks ago before I went away. He wants me to tweet a lot more. Maybe I will after I settle back in at home and work.
    On Twitter, you will also see regular tweets from American Citizen Abroad, (who posts at Brock under another name).

  3. Here are two articles about “cross-party committee of British legislators has called on the government to introduce U.S.-style automatic disclosure of information on UK citizens by foreign institutions and tax authorities to help stem global cross-border tax evasion.”—regulation/influential-committee-calls-british-fatca
    Interesting these articles reference British “citizens” and not British residents. Strange in view of the fact Britain has territorial based taxation, not citizenship based. The European Five “reciprocity” with US only calls for information on residents of those European countries, but maybe the British have decided to pump it up. Or maybe it’s just an error in use of words in the article.
    I hope Mona Lisa or anyone else in Britain may share their views on this with us.

  4. I actually just read the report and indicated that the Assistant Chancellor of Exchequer did not intend to introduce a UK FATCA as the the UK did have a “tradition” of “extraterritorial” legislation in the same way the US did.

  5. 37. Under the US Foreign Account Tax Compliance Act (FATCA), by contrast, information is exchanged automatically, rather than just on request. If a US citizen or corporation (subject to certain exemptions) holds an account with a financial institution outside of the US, this financial institution is required to provide an annual report to the US authorities, covering information including the account balances, gross deposits and gross withdrawals.[58]
    38. There are no similar rules in place for non-US citizens or corporations. The EU Savings Directive is currently the closest equivalent to FATCA in the EU: if any EU resident holds an account in a member state other than his / her country of residence, there is a requirement for the tax authorities of his / her country of residence to be notified of any interest paid on this account. (Austria and Luxembourg are currently exempt from this obligation for a ‘transitional period.) However, unlike FATCA, which applies to tax authorities outside of the US, the EU Savings Directive does not apply to tax authorities outside of the EU.[59]
    39. It has thus been argued by organisations ranging from Christian Aid to Glencore, the global commodities trader, that a system of automatic information exchange should be implemented more widely (rather than just in the US).[60] In its written evidence, the Tax Justice Network argues that:
    automatic exchange has clear advantages over the ‘on request’ approach mentioned above in so far as it has a stronger deterrent effect—and will therefore work faster to shape a culture of tax compliance—and it is vastly easier and cheaper to implement.[61]
    In his oral evidence to us, Tim Scott, Global Head of Tax at Glencore, stated that “I think this [automatic exchange of information] is a good idea, and something that we would have no problem with.”[62]
    40. Whilst the Government claims to support automatic exchange of information in principle, it has expressed some concerns about the possible burden on businesses and financial institutions, and around taxpayer confidentiality.[63] The Exchequer Secretary to the Treasury, Mr David Gauke MP, also suggested that the UK should wait for an international consensus to emerge rather than acting unilaterally, since the UK has “less of a tradition of extraterritorial impositions” than the US.[64] In respect of the possible burden on businesses, meanwhile, the Government’s concerns appear to be unwarranted: large businesses such as Glencore and brewing giant SABMiller have no opposition to the policy.[65]
    41. The capacity of a developing country tax authority to obtain information on the offshore activities of its citizens or corporations (i.e. information from foreign tax authorities) is critical to its ability to curtail illicit capital flight. Their capacity to obtain such information could be greatly enhanced by legislative measures: the US Foreign Account Tax Compliance Act (FATCA) is a welcome start, but it only affects US citizens or corporations. We recommend that the Government introduce legislation similar to the relevant section of the US Foreign Account Tax Compliance Act (FATCA), requiring tax authorities automatically to exchange information relating to UK citizens or corporations. The Government should also use its influence (via the OECD Tax and Development Task Force, and similar avenues) to persuade other governments to follow suit.

  6. ‘”Back by Popular Demand!”
    Here is a notice that the Canadian Institute is offering two days of FATCA training October 30 and 31–just in time for Halloween. Perhaps one of us should dress up as Nina Olsen and attend as the Taxpayer Advocate.
    I am dumbfounded that their agenda makes no mention of Canadian laws and the very real possibility of lawsuits if and when banks begin violating the rights of Canadian citizens and residents.
    I can’t believe they don’t know about it. So, why are they just ignoring it?

  7. @Blaze
    I believe they are ignoring it because as my financial advisor told me – “The Fatca train has left the station”. I think that Canadian financial institutions believe that Canada like all countries who want to continue to do business with the USA, have no choice but to sign on to some form of FATCA.
    I really believe that the financial institutions think that somehow, someway, the Canadian government will find a way to ensure that our institutions can and will continue to do business buying/selling securities in the U.S.
    I have been called a ‘pessimist’ by friends and family but nothing so far convinces me that this is going away.

  8. @Tiger: I hope it doesn’t come to this, but I would love to be in the courtroom the day Canadian banks and the IRS try to tell Canadian judges at possibly the Supreme Court of Canada that American law takes precedence over Canadian laws and the Canadian Constitution in Canada.
    If Maura Drew-Lyttle of Canadian Bankers Association has found Maple Sandbox, I hope she will comment on this. Of course, she never did answer my repeated question at Brock about what is the legal authority for Canadian banks to demand information on place of birth of Canadian citizens and residents or what is the legal authority for Canadian banks to close accounts of Canadian citizens or residents for failure to provide that information or for failure to provide consent for information to be released to a foreign government.
    Could it be because there is no such legal authority? Hmmm.

  9. @Blaze
    I guess what I believe is that our government will either find a way to get around the present law or find a way to have the financial sign on to FATCA and still stay within the present law. I sure don’t know how they will do it but I don’t think Canada is just going to walk away from doing business in the U.S. I hate it but that is what I believe.

  10. @Tiger: So far, we have seen no indication the government has any interest in changing Canadian law. If they do, we then may have grounds for a Charter challenge against the government. Changing the Charter is not just a simple matter of passing a law in Ottawa. Remember Meech Lake?
    I also don’t think Canada and Canadian banks will just walk away from doing business in US. I don’t know what the solution is, but it will have to be found in a way that does not violate fundamental Canadian rights.
    Remember Canada is unique in that we have a long-standing “reciprocity” agreement for exchange of information on each other’s residents. It is very possible that may be our saving grace.
    With all of that said, I still wish the Finance Minister would simply say: Canadian banks must adhere to Canadian law. Canadian law will not be changed to accommodate a foreign government. Until he does, we all will continue living under this cloud.

  11. I always liked the statement the FATCA train has left the station. For the thing it is quite clear that those who want FATCA in DC all along have never intended for their to be any public discussion of its implications at any point along the line. If you look the legislative history of the act in Congress the sponsors of it Baucus, Rangel, Neal, and Kerry did just about everything in their power to avoid any type of public discussion or dissent.
    I also have my suspicions that several career public servants in DC are quite upset they are being personally attacked on sites like this for what they feel is just doing their job and serving their country(the US that is).
    Woman who actually “wrote” FATCA for Senator Max Baucus:

  12. I also have very distinct memories of the Iraq War time period when a significant part of the commentariat said that Canada would have no choice but to participate or else “ruin” its relationship with the US. I even remember when Ernie Eves had that stupid Pro Iraq War rally in Nathan Phillips Square with Mike Harris. Looking back at the time period it is quite clear Canada did not “ruin” its relationship with the US although that was quite a bruising period.
    Here is an a somewhat biased article from Diane Francis that gives at bit of run down of how that entire time period went down.

  13. Now just to make a final comment. If the intention of the current government is make a full Iraq War style breach over FATCA you probably are not going to do it right now. You have US elections coming up in under 2 months. You have the possibility of a new president and almost certainly new cabinet members in the US. If you look at the timeline of the Iraq War it was relatively late in the game when Canada came out in opposition and had gotten to the point that it was clear there would be no agreement with the US.

  14. @blaze, tim, and tiger. Didn’t the CBA thread at IBS at one point have a post that said that the CBA had hoped to see an article by them published in the Washington Post? Do you remember that? I think it was in response to our challenges to them about selling out their US/dual account holders and the public silence resisting FATCA, at the same time as on their site it seemed to be getting account holders ready to comply.
    This is the post I mean:
    “Maura Drew-Lytle
    July 16, 2012 at 3:44 pm
    ..”I am with the CBA and we have been following your discussion. We certainly understand the concerns that you have with FATCA. However, you seem to be under the impression that Canadian banks are planning to willingly go along with the FATCA requirements and this is certainly not the case. In fact, the Canadian banking industry agrees with your concerns and we have been and will continue to fight to change the extraterritorial reach of FATCA and lessen the impact it will have on Canadian banks and their customers. ”
    “Last week we also submitted an opinion piece with our concerns about FATCA to the Washington Post and we are waiting to hear back about whether it will be printed.”….
    So that was in July. Anyone seen anything from the CBA re that opinon piece to be submitted to the Washington Post?

  15. I STILL very much remember that statement and have been wondering what ever happened in regards to that.
    For my last and final comment. Here is supposedly the position of the Russian Government regarding FATCA. Notwithstanding the totalitarian tendencies of my buddy Vlad the Impaler I suspect the position of the Russian government described here would very much to be many’s liking here.

  16. @Tim,; why can’t the CBA just buy up a half page announcement if they can’t get an Op-Ed published at the Washington Post? Does that mean they can’t even get one published in a Canadian paper at the very least? Or in the business pages of the major dailies here? There is almost nothing being published about this in Canada – and no attempts by the banks, the government or anyone else that I can see to bring broader awareness of what FATCA means for everyone in Canada, not only duals and US ‘persons’. For sure it would tap into the latent anti-US vein that surfaces regularly in reaction to US overreach on issues that touch Canadians – when the public finds out about it that is. Try doing a search at CBC for FATCA – nothing for months.
    The cost of a paid page in a major paper would pale in comparison to the projected compliance costs of FATCA. So, what is gained by the public silence in Canada right now?

  17. @badger
    I couldn’t agree with you more. I have been saying for months and months that the ‘silence of the Canadian government (Flaherty) is deafening’. I still can not believe how many Canadians are so unaware of all that is going on and they certainly don’t understand the impact on all when it comes to the costs of the banks to comply with FATCA. Could the media be muzzled?

    1. @tiger, I have wondered if there is an agreement not to publicize FATCA, and if ever mentioned, only online, and only in the context of large financial institutions, with no mention of the effects on ordinary account holders, and all those who will be paying for it whether they know it or not. Surely FATCA is a big enough story in the Canadian press re a huge threat to Canadian sovereignty.

  18. I had forgotten about the Washington Post article. I will e-mail Maura Drew-Lyttle at CBA and follow up about that. Thanks for the reminder Badger. I will also ask Maura if she would like to post here at Maple Sandbox.
    In terms of the train has left the station, it can still be derailed when it tries to speed across the Canadian border with no regard for Canadian signal lights and laws.
    It sounds like Russia also plans to derail the FATCA train. Thanks Tim. It seems Russia’s equivalent of Flaherty has said exactly what I have been asking Flaherty to say. I hope other countries will stand up and say their own laws take precedence at home.
    The FATCA train may have left the station, but I’m still not convinced it will reach it’s destination. I do worry about the pollution that will be spilled and the injuries (some life-threatening!)that will result from the derailment. Let’s hope the only death is FATCA itself.

  19. @Blaze
    Good analogy – I like it – ‘derailed FATCA train’. I hope you get a response from Maura Drew-Lyttle. It would be good to have someone from CBA posting at Maplesandbox.
    By my calendar, Flaherty and others have about four months left to give some kind of answer regarding what they plan on doing about FATCA. Let us hope, it is sooner rather than later. I, for one, am tired of waiting.

  20. @hazy2 “So, I think it is possible that someone, somewhere, on principles alone, might challenge a FATCA penalty even if it costs them more than the penalty”
    There is another angle. Someone could challenge the COLLECTION and/or even the constitutionality of the FATCA penalty in their home country by making constitutional and legal arguments based on the local constitutional and legal frameworks while also arguing US constitutional issues. This might not be all that expensive, depending upon the country. Some countries do allow parties to make arguments based upon foreign laws in their courts.
    This could already be done for FBAR (FATCA is too young, I doubt that the IRS has gotten around to pursuing penalties for the “taxpayer” reporting requirements that already went into effect) although I would think that one would have to be outside of the OVDI or “opted-out” of it.

  21. Found an interesting article discussing the FATCA Intergovernmental Agreements by a New York law firm, Strook. It was the title that attracted me,”Gunboat Diplomacy? Treasury Releases Model FATCA Intergovernmental Agreement”, but I thought it was one of the more easily understood articles. Although I dislike their conclusion, I do think it is correct, given that, if I remember right, no country has come right out and told the US to bug off. Certainly the Canadian government has not.
    “The nascent success of intergovernmental agreements, provided they are generally respected by the governments that enter into them, means that the gunboat diplomacy approach of FATCA is working: a wholesale revolt against FATCA compliance seems unlikely in countries that have signed intergovernmental agreements. With major trading partners and their FFIs roped in, the next challenge lies in learning to live with the new regime.”
    This article posits that those who enter into full IGAs, like The United Kingdom, France, Spain, Italy, and Germany, will have a competitive advantage over those that don’t enter into an agreement, or who, like Japan and Switzerland will allow some reporting from their financial institutions to the US, with ‘supplemental information’ provided by the govt.
    If that’s true, then I think we can expect that eventually most if not all will have full IGAs, as really, the banks are expected to be competitive and to make a profit.
    It’s just too late for any country to say they’re just not going to allow their FFIs to comply. If they were going to do that, it would have been done as soon as FATCA was announced, not now, when it’s in the process of being implemented.

  22. @OutragedCanadian
    ‘It’s just too late for any country to say they’re just not going to allow their FFIs to comply’.
    That is exactly why I have said on this and other threads the FATCA train has left the station; the silence of the Canadian government is deafening; and, the Canadian government will allow ‘some form’ of FATCA to go through.
    I am certainly not smart enough to figure out how and in what manner, but in my heart, I think the ‘powers that be’ will not allow the Canadian financial institutions to fail because of FATCA.

  23. I think that the only that would seriously derail this train would be efforts by the U.S. Congress to kill reciprocity. Countries are not necessarily against the idea of FATCA provided that there is something in it for them. Reciprocity gave them something and I suspect that if it ever is implemented then the train will become a TGV.
    Thus far, the US Congress *is* trying to stop it but in a very sneaky way. The wording of the bill I saw which will prevent Treasury from implementing new reporting rules on U.S. banks is rather coy: we will allow this when (and if) the US unemployment rate drops. Very interesting…..

    1. A request for reciprocity in 2009, made by Mexico to the US was ignored by the IRS and Treasury – they snubbed Mexico and according to one account, didn’t even give an answer . Yet the US pretends that FATCA is to prevent money laundering and other criminal flows of funds across borders and internationally. Mexico loses significant amounts of money to the US – through transfers across the shared border. Now the domestic US banks are trying not to provide reciprocal information on their non-resident accounts in Florida, Texas and other states with large numbers of those accounts. Mexico apparently has laws that could fine or imprison bank officials who withhold without proper authorization.
      I’ve been curious to see what would happen in the case of Mexico and FATCA since the largest population of US persons/duals abroad live there. Thanks goes to Just Me (JM, where have you been?) was the one who underscored for me the importance of the opposition by banks and politicians in Florida and other states, who profit from US bank secrecy and provide secret banking services for non-US residents – from Mexico and S. and C.America.

      1. Hi badger, Yes, the idea that the US might have to do reciprocity with Mexico or the rest of Latin America sent some senators into a panic. Clearly the US benefits from those deposits and doesn’t want that information revealed to those governments. I predict that even if the US Congress doesn’t kill reciprocity, the senators from Florida or California will try again. Probably with something that says that in the interest of “protecting” those accountholders the US will not reciprocate in some circumstances.

  24. Note, a comment from KPMG:

    “Few issues in the international tax field have excited as much attention recently as FATCA, the US government’s Foreign Account Tax Compliance Act. Since its passage in March 2010, criticism and concern about the implications have been mounting steadily. Equally important, how companies transition to FATCA compliance will have a significant impact on their relationships with their customers, investors, counterparties and services providers.”

    So, KPMG actually thinks FATCA will change relationships between banks and customers? It certainly will. If my bank demands to know where I was born and threatens to close my account for failure to provide that information or for failure to provide consent to release my financial information to a foreign government, my bank will be dealing with my lawyer instead of with me.
    I would say that is a “significant impact on their relationship” with this 32 year customer.

  25. @Victoria, I agree. The bill has been voted by the house and still has to be passed by the Senate. No clue when it’s going to be up for vote in the Senate, and if it has a chance to pass in a democratic Senate.
    @Blaze, realistically, do you think a lot of people are going to be willing to spend the money necessary to sue the banks?
    It seems that class action lawsuits would be more appropriate in this case.

  26. @Christophe: I don’t intend to be alone in my fight against the banks. It will not be difficult to muster a group effort to take this on.
    “Alone we can do so little; together we can do so much.”
    (Helen Keller)

  27. @Blaze
    Count me in, too.
    How on earth to you come up with all those wonderful quotes? Your memory must be phenomenal.

    1. … and a must for any parent to educate their child or children in an US citizenship affected family — information they can use to make one of the most important decisions of their lives.
      One of Renounce’s best posts in my opinion!

    1. I have often remarked that the UK seems to copy a lot of bad ideas that come from the US. I am amazed that the consumer credit in the UK appears to me (from advertising that I see on BBC) to be set up in much the way as the US and encourages people to overspend. I seem to remember that even Capital One (US bank specializing in issuing plastic money) had or even still has UK operations.

      1. Couldn’t agree more. “Predatory lending” seems to be alive and well in the UK. I was amazed. Can’t do that in France. In fact since I’ve lived here (nearly 20 years) I’ve never had a US-style credit card. I don’t think they even exist. I’m also in the process of buying a house here in Versailles. Here’s some pictures (my own show and tell):
        It’s so cute. Really small but nice. In the post I wrote a bit about French inheritance laws and in a previous post here:
        I talk about prices in the US versus France and how French mortgages work. Basically your monthly payments may not exceed 33% of your monthly income. Period. I’m sure some folks will consider this to be horribly paternalistic but it does mean that folks have a much harder time getting into trouble. I personally have no problem with it.

        1. @Victoria, love your house (to be)! It’s the kind of place I love to live in. I don’t live in anything like that now, being in a relatively young mountain community, but I would if I could. I went to France as a teenager, a school project, where despite being told I had a ‘cheap Canadian accent’, I was treated wonderfully by the Parisians, who were very supportive of my poor french and attempts to improve it. It was my first trip anywhere (first plane ride, first time out of the province,first taste of red wine, etc) and made a lasting impression on me and I still find myself kindly inclined toward the French tourists, despite the decades that have gone by. I hope to one day visit there again as an adult as I don’t think I truly appreciated the history and beauty when I was 16!

  28. Here’s more Food for Thought.—cheap-quebec-customers-hit-by-special-tax-in-burlington-vt-restaurants
    Some Vermont restaurants have added a special “Queeb tax” to bills for customers with a Quebec accent. One man, originally from France, but living in US had an 18% charge added to his bill after he spoke French at his table.
    I agree people should tip. But, taxing based on accent or language? These restaurants learned well from IRS.

  29. @Blaze, I’m not one to defend people who don’t tip but discriminating against someone just because they sound French is an act of desperation on the part of the restaurant and it’s employees.
    They pay their servers $4.10 per hour??!! I heard a rumor slavery had been abolished in the US, guess it was just a rumor.
    If they’re so financially desperate, how good can the quality of their food be? I would think any restaurant that engages in discriminatory practices wherever they can get away with it probably also does other bad stuff. When it comes to food, I don’t even want to think about what bad stuff they’d do.

  30. @OMG: I understand in some US states, the minimum wage for servers is less than for other workers because it is expected they will get tips. Not sure if that is the case in Canada or not.
    It seems Canadians are not as polite or popular in the US as we like to think. If some folks in the state of Washington have their way, we could be Banned in Bellingham.

  31. Whoa, that is not cool. Another situation where some basic cross-cultural training would be useful. Culture is a negative feedback system – sometimes the only way you know you’ve done something culturally wrong is because you get penalized for it or someone yells at you. In France generally you don’t tip because it’s included in the bill. You can do it if you want to (and I always do) but it’s not required. When my spouse came to the US he had to learn about tipping and was very happy to do so once he understood the system. And, yes, those waiters and waitresses in the US get paid squat. Waiters in France are not paid well but they do get health insurance and 5 weeks of paid vacation.
    That story reminded me of a trip to a US store I made with my French sister-in-law. In France the sales tax is included in the price on the sticker and is not calculated at the cash register. So when she paid for her purchases it was more than she expected and she leaned over and whispered in my ear, “Are they charging me more because I’m French?”

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