Tax Notes Article: FATCA and Canadian Charter

The following article appeared in Tax Notes.  I now have received copyright approval for a one-time post at Maple Sandbox.
The article was written by Kristin A Parillo and published by Tax Analysts.
It mentions “anti-FATCA crusaders,” Maple Sandbox, Isaac Brock Society and  Elizabeth May/Green Party.   In addition, the article includes a comment from “a person named Blaze” on Nigel Green’s blog.
The article quotes two Canadian lawyers who disagree with Peter Hogg’s opinion on the Charter implications of a FATCA IGA. However, Mr. Hogg is Canada’s leading constitutional scholar.  The other two lawyers are privacy and security lawyers. On constitutional matters, I think the opinion of a prominent constitutional lawyer who has advised and represented the government on constitutional matters is likely to be more valid.
I will post some personal comments and responses as a reply.
Here is the full content of the article. It is my understanding this cannot be published elsewhere without copyright approval from the publisher and author.

Could A FATCA Agreement Be Vulnerable To A Canadian Constitutional Challenge 

Tax Notes International, June 10, 2013.

Kristen A. Parillo examines a December 2012 letter sent by Canadian constitutional expert Peter W. Hogg to the Canadian Department of Finance, in which Hogg questioned the constitutionality of a possible intergovernmental agreement to implement the U.S. Foreign Account Tax Compliance Act.

It may seem unthinkable to some that Canada — the U.S.’s largest trading partner — wouldn’t enter into an intergovernmental agreement with the United States to implement the U.S. Foreign Account Tax Compliance Act. However, a letter from Canada’s leading constitutional scholar to the Canadian Department of Finance questioning the constitutionality of a possible IGA has given hope to some Canadian anti-FATCA crusaders that such a scenario could happen.
The U.S. government’s recent crackdown on offshore tax evasion has unsettled many Canadians, particularly the dual Canadian-U.S. citizens residing in Canada (estimated at about 1 million) who didn’t realize they still had to file U.S. tax returns and foreign bank account reports. Following the 2010 enactment of FATCA and subsequent dialogue between the U.S. Treasury Department, the IRS, and stakeholders on the best way to implement the new reporting and withholding rules, many Canadian individuals and financial institutions expressed concerns about FATCA’s extraterritorial reach and the enormous costs of enforcing the new rules.
In September 2011 Canadian Finance Minister Jim Flaherty sent a letter to major U.S. newspapers in which he said that while the Canadian government supports U.S. efforts to curb tax evasion, it did not believe that imposing FATCA on Canadian citizens and financial institutions would achieve that objective and would instead “waste resources on all sides.” Asserting that FATCA would raise significant privacy concerns and effectively turn Canadian banks into extensions of the IRS, Flaherty noted that the U.S. and Canada already have procedures in place to address suspected tax evasion — the information exchange provisions of the Canada-U.S. tax treaty. (Prior coverage of Flaherty’s letter 2011 WTD 182-4: News Stories; prior analysis of FATCA and information exchange relationships in the Americas 2011 WTD 118-1: News Stories.)
In an effort to reduce financial institutions’ compliance costs and resolve local law conflicts that would otherwise prevent banks from complying with FATCA’s reporting requirements, Treasury in February 2012 unveiled the IGA framework as an alternative means for financial institutions to comply with FATCA. On November 8, 2012, Treasury announced 2012 WTD 218-28: Treasury News Releases that it was in IGA negotiations with more than 50 jurisdictions, including Canada. That same day, the Canadian Department of Finance released a statement 2012 WTD 218-17: News Releases inviting stakeholders to submit comments and concerns about the ongoing Canada-U.S. IGA negotiations.
In response to that invitation, Peter W. Hogg, one of Canada’s leading constitutional experts, in December 2012 sent a five-page letter to the Department of Finance in which he contended that an IGA negotiated under the terms of the model IGA would likely violate section 15(1) of Canada’s Charter of Rights and Freedoms, which prohibits discrimination based on several criteria, including “national or ethnic origin.”
Elizabeth May, an American-born member of the Canadian Parliament for Saanich-Gulf Islands and leader of the Green Party of Canada, obtained Hogg’s letter through an Access to Information Act request and on March 13 posted it on the Green Party’s website. May, who has been strongly critical of FATCA and has urged the Canadian government to stand guard against the “extraterritorial demands” of the United States, said Hogg’s letter “should provide some cause for hope to the one million Canadians, including hundreds of my constituents in Saanich-Gulf Islands, who have been threatened by this financial witch-hunt.” (Green Party news release with copy of Hogg’s letter 2013 WTD 106-35: Tax Correspondence.)
May’s publication of Hogg’s letter was picked up by mainstream Canadian media outlets as well as various websites and blogs, including Maple Sandbox (which calls itself “a gathering place for people fighting FATCA, FBAR and U.S. citizenship-based taxation”), the Isaac Brock Society (a forum for “individuals who are concerned about the treatment by the United States government of U.S. persons who live in Canada and abroad”), and U.S. Citizens in Canada InfoShop (a website dedicated to documenting the historical circumstances following the IRS’s 2011 offshore voluntary disclosure initiative and the implementation of FATCA).
Nigel Green, CEO of the DeVere Group, a financial consulting company that advises expats and international investors, on March 14 posted a statement on the company’s website in which he proclaimed that Hogg’s letter “could provide another nail in the coffin for FATCA.” A person named Blaze commented on Green’s statement:

    If Canadian government sells out Canadian citizens on FATCA, many of us are prepared to come together to launch legal action to protect our rights as Canadian citizens and residents. A consultation with another leading constitutional lawyer took place almost a year ago. Groundwork is laid if either banks or the government tries to violate our fundamental rights.

While Hogg’s letter has generated some excitement and hope among anti-FATCA advocates that it will give the Canadian IGA negotiators second thoughts — or will somehow throw a legal wrench in Canada’s implementation of FATCA — the online chatter has largely overlooked a fundamental question: Does Hogg make a strong constitutional argument? The answer appears to be no, at least on his section 15(1) point.
Hogg declined to be interviewed by Tax Analysts, saying he would prefer not to publicly discuss his letter while IGA negotiations between the Canadian and U.S. governments are ongoing.

Hogg’s Letter

Hogg wrote that while FATCA and any related IGA could run afoul of some Canadian privacy, human rights, and federal and provincial laws, and could also violate other sections of the charter, his analysis focused only on section 15(1), which states:

    Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.

Hogg noted that the Canadian Supreme Court has held that citizenship is an “analogous ground” to national or ethnic origin, so that discrimination based on citizenship is prohibited by section 15(1). He argued that if the Canadian government were to sign an IGA and enact legislation giving effect to the IGA provisions, the due diligence requirements in Annex I of the IGA would violate section 15 to the extent they follow those found in the model IGA.
The problem, he explained, is that the due diligence provisions require financial institutions to treat people differently based on innate characteristics such as place of birth or citizenship. As an example, he pointed to Section II.B of the model IGA’s Annex I, which sets out the procedures for reviewing preexisting individual accounts with a balance or value as of December 31, 2013, that exceeds $50,000 ($250,000 for a cash value insurance contract or annuity contract) but does not exceed $1 million. Under that section, financial institutions must review their records to see if any of their account holders show certain U.S. indicia:

  • identification as a U.S. citizen;
  • unambiguous indication of a U.S. place of birth;
  • a current U.S. mailing or residence address;
  • a current U.S. telephone number;
  • standing instructions to transfer funds to an account maintained in the United States;
  • currently effective power of attorney or signatory authority granted to a person with a U.S. address; or
  • an “in care of” or “hold mail” address that is the sole address the financial institution has on file for the account holder. (May 2013 version of Model 1 reciprocal IGA 2013 WTD 92-38: Other Treasury Documents; May 2013 version of Annex I to Model 1 IGA 2013 WTD 92-43: Other Treasury Documents.)

Hogg noted that if the financial institution finds U.S. indicia in an account holder’s file, it must treat that account as a U.S. reportable account and report it as such to the Canada Revenue Agency, which will then automatically forward the account information (including the account holder’s name, address, date of birth, account balance, and interest accrued on the account) to the IRS. Regardless of a finding of U.S. indicia, a financial institution may elect to apply the provisions of Section II.B(4) of Annex I, under which a financial institution is not required to treat an account as a U.S. reportable account if the account holder provides documentation such as an IRS Form W-8, a non-U.S. passport, or a Certificate of Loss of Nationality of the United States, or a “reasonable explanation” of the account holder’s renunciation of U.S. citizenship or why he did not obtain U.S. citizenship at birth.
Hogg also pointed to Section III of Annex I, which sets out the rules for opening new individual accounts. Financial institutions must review depository accounts with an account balance exceeding $50,000 and cash value insurance contracts with a cash value exceeding $50,000 to determine if the account holder is resident in the United States for tax purposes. The rules state that for this purpose, “a U.S. citizen is considered to be resident in the United States for tax purposes, even if the account holder is also a tax resident of another jurisdiction.” Account holders who qualify as U.S. resident for tax purposes must be treated as U.S. reportable accounts, and the financial institution must report the account holders’ information to the CRA, which will then automatically forward it to the IRS.
Hogg said that when the IRS obtains information on U.S. reportable accounts, it is reasonable to expect that the IRS will pursue some account holders for taxes and penalties or seek criminal prosecution when it believes individuals have evaded their U.S. citizenship-based tax obligations. “Many of these people are Canadian residents and Canadian citizens, often with no economic connection to the United States, no knowledge that they had tax obligations to the U.S., and no knowledge of retroactive changes to U.S. citizenship law that may have bestowed an unwanted citizenship on them,” he wrote.
The IGA provides no mechanism whereby individuals suspected of being U.S. citizens would even know that their personal information was provided to the IRS, Hogg pointed out. Those individuals would therefore have no opportunity to provide additional information or take other steps to prevent the transmission of their personal information outside Canada, he added.
Hogg concluded that the due diligence procedures mandated by the IGA “are discriminatory in a way that would not withstand Charter scrutiny” because they effectively treat individuals differently, and adversely, based on an immutable personal characteristic — namely, citizenship or place of birth. If the Canadian Parliament were to enact legislation permitting such differential and adverse treatment, the legislation would contravene the equality protections of section 15(1), Hogg said.
Given that the Canadian Supreme Court has interpreted discrimination based on national or ethnic origin as prohibiting discrimination based on citizenship, “to impose on financial institutions the duty to report to CRA (en route to the IRS) the names, addresses, place of birth and date of birth and details of the bank accounts of account-holders identified only by their place of birth in or citizenship of the United States, and all under the implicit threat of taxes, penalties or prosecutions by the IRS, seems to me to be a clear case of discrimination in contravention of s. 15,” he wrote.
Hogg acknowledged that section 15 is subject to the charter’s general saving clause, set out in section 1, under which charter guarantees are subject to “such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.” However, Hogg said any argument attempting to use section 1 to justify the IGA’s due diligence requirements would be “extremely weak.”
“The objective of ensuring compliance with U.S. tax laws is probably not important enough to justify breaches of the Canadian Charter, and even if it was important enough, the measures contemplated are grossly disproportionate to the objective, affecting, as they would do, as many as perhaps a million law-abiding Canadian citizens or residents who have a place of birth or citizenship in the U.S.,” he wrote.
“Canada is not a tax haven, and these people are here for reasons that have nothing to do with reducing the taxes they have to pay,” he continued. “If some of them are found to have been avoiding U.S. taxes, that could hardly justify a Canadian law imposing such intrusive measures affecting so many people distinguished only by place of birth or citizenship.”
Hogg therefore urged the Canadian government — assuming it intends to sign an IGA — not to negotiate an agreement based on the measures contained in the model IGA. He suggested that the Canadian government seek to limit Canadian financial institutions’ collection of information to what is already collected and provided under the existing Canada-U.S. tax treaty. In other words, financial institutions should focus their review of records for evidence of U.S. residence, not U.S. citizenship.
Hogg recommended that the Canadian government modify the due diligence procedures specified in the model IGA by stipulating that any account held by a person who is a resident of Canada for Canadian tax purposes would not be treated as a U.S. reportable account. Thus, only accounts held by U.S. residents would be identified as U.S. reportable accounts.
“Any legislation enacting an IGA with this more limited focus would be more consistent with existing data collection practices of Canadian financial institutions, less disruptive of existing practices, and more protective of equality rights,” Hogg concluded. “Section 15 does not prohibit discrimination based on place of residence, and legislation based on existing practices would be much less likely to be vulnerable to a Charter challenge.”

Incomplete Analysis?

Canadian practitioners who specialize in privacy and security matters told Tax Analysts that Hogg’s constitutional analysis is incomplete. “Certainly a FATCA IGA would require banks to single out one fact about a person — citizenship — which Professor Hogg is correct in saying is a protected ground from discrimination under section 15,” said Timothy M. Banks of the Toronto office of Dentons.
“But the Supreme Court has said that not every distinction or differentiation based on those prohibited grounds is discrimination,” Banks said. “There has to be some disadvantage that’s imposed on that person that’s linked to or perpetuates some prejudice or some kind of stereotype.”
“It’s not clear how that requirement would be satisfied if the Court were to say that’s the test,” he continued. “What prejudice or stereotype do we have about persons with dual citizenship, who may be residents of Canada, that is linked to this tax reporting structure? That would be a question that the Court would want to hear something about. And that is not discussed in Professor Hogg’s letter.”
Michael H. Lubetsky of the Montreal office of Davies Ward Phillips & Vineberg LLP agreed that Hogg’s analysis is missing a critical point — that not all distinctions constitute a violation of section 15(1) — and he said Hogg oversimplified the issues. “Many laws make distinctions based on immutable personal characteristics that result in adverse treatment,” he said. “For example, in Canada persons over age 65 get a special tax credit. For those under age 65, that’s adverse treatment. I’m under 65 and don’t get this special tax credit — I’m being treated adversely based on a personal immutable characteristic, my age.”
“If I went to court and said I should be entitled to the age tax credit because I’m being discriminated against under section 15, I would be laughed out of court, and rightfully so,” he continued. “The reason I’d be laughed at is two things. First, section 1 of the Charter says the government may violate the constitution if the measure can be demonstrably justifiable in a free and democratic society. So you can make an argument that the protection of the elderly is important — that they have particular problems and concerns and need this tax credit. That would be a section 1 answer.”
“A second, more important answer is the dignity answer,” Lubetsky said. “The Supreme Court has held that section 15 does not apply to every distinction under the sun — it applies only to distinctions that relate to the dignity and the worth of the individual, and that send a message that members of this disadvantaged group are somehow not as worthy of protection as other people.”
Lubetsky said he finds it highly unlikely that the Court would accept an argument that requiring financial institutions to flag accounts showing indicia of U.S. citizenship is discrimination in violation of section 15(1). “I don’t think one could argue that legislation adopting the IGA’s due diligence requirements is sending a message that American citizens, or people born in the States, are somehow less worthy, or that this is an attack on the dignity of U.S. citizens,” he said. “We don’t tax our expatriates like America does, but I don’t think we regard taxation of expatriate citizens as necessarily something that’s morally reprehensible.”
Banks questioned Hogg’s assertion that any argument based on the “reasonable limits” clause of section 1 to justify the due diligence requirements would be “extremely weak.” Following its decision in R. v. Oakes, [1986] 1 S.C.R. 103, the Supreme Court has developed a four-step test to determine whether limits placed on charter-guaranteed rights and freedoms are “demonstrably justified in a free and democratic society”:

  • Is the government’s objective in limiting the right a pressing and substantial objective according to the values of a free and democratic society?
  • Does the legislation’s limitation of a charter right have a rational connection to Parliament’s objective?
  • Do the means used to achieve the objective impair the right as little as possible?
  • Are the means used to achieve the objective proportional to the effects of the legislation?

“Many Charter cases are won and lost, and hard-fought, over this section 1 point,” Banks said. “The Court requires real evidence, and it’s difficult to predict in advance how the Court would go. I think some of the issues the Court would be interested in are the importance — given international mobility and international commerce — of being able to engage in cooperation agreements in order to facilitate tax compliance and tax collection. That’s important not only from the U.S. perspective but also Canada’s perspective.”
Banks said that if there were a constitutional challenge of the IGA, the Court would have to be mindful that the issue isn’t the reasonableness of the U.S. citizenship-based tax regime vis-à-vis the Canadian residence-based tax regime. “If the case were to be argued, that’s going to be something that’s difficult to keep at the forefront — the fact that it’s not about whether it’s reasonable for the U.S. to have a tax system based around citizenship,” he said. “The parties really have to be focused on the information-sharing and whether that complies with the Charter.”

Other Legal Challenges?

Lubetsky said it’s possible that a better argument for challenging the constitutionality of a FATCA IGA could be made under sections 7 and 8 of the charter. Section 7 protects an individual’s autonomy and personal legal rights from governmental actions (“everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice”). Section 8 protects an individual’s right to privacy (“everyone has the right to be secure against unreasonable search or seizure”).
“The question could be framed as: Does a systematic, widespread gathering of information and turning it over to a foreign government in a way that a person in Canada doesn’t have any way of knowing specifically that he’s being targeted, and has no opportunity to challenge the turning over of that information, violate the Charter?” Lubetsky said.
“That’s where I think a constitutional challenge may lie — and I emphasize may,” he added.
Other possible legal challenges could be made on federalist grounds. Lubetsky noted that in Canada, if the federal government enacts a treaty on a subject that is within the exclusive jurisdiction of the provinces, the provinces must enact those treaty provisions. “Some financial institutions, such as credit unions, are regulated provincially, and there will be a constitutional question about whether the Parliament of Canada can regulate them,” he explained.
“There’s a big question whether the federal government is constitutionally competent to enact some of the FATCA provisions,” Lubetsky continued. “Generally speaking, the division of power between what is a matter of federal jurisdiction and what is a matter of provincial jurisdiction historically is sharper in Canada than it is in the United States.”
As for whether the Department of Finance is considering the constitutional implications of a FATCA IGA, Banks said that all legislation in Canada has at least some level of review for compliance with the charter. “And I think when you have someone of Professor Hogg’s stature sending you a letter like this, you will put it on your radar,” he said.
Moreover, given that FATCA has attracted the mainstream media’s attention — which could increase the appetite for public interest advocacy and charter litigation — the Department of Finance is likely aware that any legislation implementing a FATCA IGA could be the subject of a constitutional challenge, Banks said.
If Canada did sign an IGA under the terms of the model IGA, it’s possible the implementing legislation could be tied up for years in the Canadian courts, Banks said. “This is going to be important to a significant number of people who are resident in Canada, and one could easily imagine that there would be Charter litigation,” he said. “And that could take years to unfold.”
An interesting issue, Banks said, is whether a constitutional challenge would be brought by an individual or by a group via public interest litigation. “Whether a court would give the group standing to do that is a big question,” he said. “You can imagine that U.S. citizens living in Canada who might be the subject of this litigation may be reluctant to bring a claim in their own name. So we’d have to wait and see whether a court would grant a public interest group standing to bring the claim instead.”
If a legal challenge were brought, Banks said, another interesting issue would be whether the individual or group that brings the claim seeks a stay of the application of the IGA implementing legislation until the case is fully heard. “That would be very much an uphill battle, but they could seek a stay,” he said.

Battle of Wills

Since the U.S. and Canadian governments’ November 2012 announcements that they are negotiating an IGA, neither side has made a public statement on the status of those negotiations. Asked whether the Canadian government is reviewing the IGA framework for possible constitutional violations, a Canadian Department of Finance official told Tax Analysts on May 24 that the department continues to work with its U.S. counterpart to develop an approach that both countries will find agreeable, and hopes to conclude an agreement soon.
The official said the department does not comment on the substance of ongoing negotiations.
What if Canadian officials follow Hogg’s advice and demand that the due diligence procedures be narrowed to focus only on U.S. residents, rather than U.S. citizens? In short, a battle of wills. Treasury officials have repeatedly said that the model IGAs are just that — a model — and that the U.S. will not negotiate customized IGAs to address a jurisdiction’s particular concerns.
“The really hard case would be if Canada were to conclude that it constitutionally cannot give this information, in which case the U.S. would be faced with a very hard choice as to whether or not it agrees to a significant departure from the due diligence procedures, or it simply says, ‘We just cannot have an IGA with Canada,'” said John L. Harrington, a former Treasury international tax counsel now with Dentons. He stressed that he has no personal knowledge of the Canada-U.S. IGA negotiations and is only speculating.
“Only Treasury can make that call, but my view is that Treasury would have to be extremely reluctant to depart from the due diligence requirements,” Harrington said. “They’ve made it clear they want the IGA due diligence provisions to generally follow the regulations, so just as a matter of policy I don’t think they’d want to depart too much from the regulatory framework.”
Moreover, accepting a demand from one jurisdiction to depart from the IGA would create an unwelcome precedent, Harrington said. He added that permitting Canada to modify the due diligence requirements could prompt countries that have a loose definition of residence to demand a similar concession to protect account holders in those countries’ financial institutions.
“If the jurisdiction is low- or no-tax, then there’s no cost to the account holder being considered a resident,” Harrington said. “This wouldn’t describe Canada, but I would be worried about the precedent if I were Treasury.”
Harrington said he doesn’t see how the due diligence provisions are fundamentally different from other limitations, such as domestic tax interest or bank secrecy, that countries have had to abandon to be considered engaged in a full exchange of information.
“I don’t mean to be dismissive at all of Canadian concerns,” he said. “But a lot of countries have had to give up on traditional and deeply-held positions in recent years to be considered fully compliant on exchange of information, and it has been a painful and disruptive process for many of them. I do think this is U.S.-specific, however, since most countries would not seek to tax such nonresidents with so limited links to the ‘home’ country.”
“So, I think the real question is how much latitude Canada has on this issue,” Harrington said.
Or alternatively, an acknowledgment by both sides that FATCA offers benefits and drawbacks.
Candice Turner of the New York office of Davies Ward Phillips & Vineberg LLP pointed out that while FATCA could be described as an incremental step in the existing Canada-U.S. information exchange regime on bank account data (that is, the automatic exchange of bank deposit interest payment information under Treas. reg. section 1.6049-8), FATCA’s imposition of a 30 percent withholding tax on U.S.-source payments is a high price to pay if a financial institution cannot provide the required information on an account holder.
“A key tension here is that FATCA is meant to apply across the world, but in doing so it affects the many U.S. citizens who live in Canada,” Turner said. “People aren’t hiding their money in Canadian banks. U.S. citizens who are resident in Canada, if they’re paying their Canadian tax, probably don’t owe any U.S. tax because of the foreign tax credit. So there isn’t a real drain on the U.S. fisc from Americans living in Canada.”
Turner said that while there may be a significant number of U.S. citizens residing in Canada who, intentionally or not, haven’t been complying with their U.S. reporting obligations, “those are just reporting requirements; it’s not that they’re escaping U.S. tax or trying to hide their assets.”
“From the Canadian perspective, the argument has been, ‘We should be treated differently because we have a close relationship, we’re border countries, we have tons of people that this affects and they’re not hiding assets,'” Turner continued. “But the U.S. perspective has been very much, ‘Everyone’s getting the same deal, you can take it or leave it.'”
Turner said many governments have come around from their earlier stance that they would reject FATCA and simply not have U.S. account holders in their financial institutions, and now recognize that they need U.S. investments and must continue to engage with the United States. “So at the end of the day, those countries have decided it’s in their best interest to sign an IGA, and with Canada being so economically and geographically close to the U.S., it’s going to be necessary,” she said.
Those governments have also realized that an IGA can be mutually beneficial (assuming the IGA is the reciprocal version), Turner said. “Instead of having this ‘You can’t do this to us’ attitude they had in the beginning, these countries are starting to say, ‘Wait a minute, this may be to our benefit. Maybe we should do this so we can get information on our own citizens,'” she said.
“So at the end of the day, I suspect Canada will sign a Model 1 reciprocal agreement,” Turner said.


24 thoughts on “Tax Notes Article: FATCA and Canadian Charter

  1. Some nations sign the IGA simply because it allows for financial institutions with no American clients to be automatically FATCA-compliant. If Canada were to follow that path, then the cost of FATCA-compliance would be less damaging and there is really no need for anyone living in Canada to be a US citizen.

  2. @SwissPinoy: Doesn’t that approach result in the one you are experiencing in Switzerland–banks closing accounts of “US persons” living there?

  3. These critics are out to lunch. To begin with there is no way that they can say that “citizenship based taxation” isn’t reasonable. The U.S. in its criticism of Eritrea’s citizenship based taxation has already established that such taxation is a violation of human rights. There is no way that the U.S. can, with a straight face, say that citizenship based taxation is okay for it but unreasonable for anyone else. The U.S. is not God and the U.S. cannot practise hypocrisy.
    Secondly citizenship based taxation does subject the expat citizen to ridicule in his/her country of residence because it subjects that person to second class status when residing outside of the country of citizenship. It is basically “Jim Crow” laws that have to be applied to the non-resident U.S. person. It is no different than being told what washrooms you can use because of your skin color.
    The application of U.S. law on none U.S. turf is immoral and contravenes international norms of equality amongst nations. Citizenship based taxation forbids a nation that isn’t U.S. from exercising unfettered jurisdiction over those people who are resident within its jurisdiction and who are account holders of hit treasury. That results in discrimination since the application of its tax laws are being interferred with by a government that does not represent the residents of that country.
    Citizenship alone is not a legitimate basis for taxation but that is what America is assuming in its “over simplified” view of taxation. These critics just don’t get it or else they don’t want to get it. I think that it is more of the latter than the former. In order to exercise the power to tax there has to be some economic connection between the government’s treasury and the person who is to be taxed. I can’t just go out and insure my neighbor’s house because we live next door. If I want to insure someone else’s house I have to show that I have an economic interest in that house that would be adversely affected if the house should suffer damage. Any political entity should likewise have to demonstrate that it has an economic relationship in the financial activities of a person who just “happens” to be a citizen. Based upon that criteria it is certainly clear that the U.S. has NO economic interest in the financial lives of any its expats.
    They also fail to acknowledge that citizenship based taxation is not the world standard or that it renders one’s economic life impossible. Citizenship based taxation subjects the expat to extreme reporting and expensive reporting rules. Plus it restricts one’s earning ability to the extent that your standard of living and your work options are not as wide as they are for the person living beside you who is NOT a U.S. person.

  4. I also think that Canada can make a good case for the argument that it long standing practise of only reporting on the financial information of U.S. resident Canadian account holders should stand. This is because the practise was not something that was done in secret from the U.S. Treasury and since the Treasury never objected it has given its tacit approval.
    It would be unfair and extremely damaging for the U.S. to want to change the game’s rules now. By not having enforced citizenship based taxation for all of these prior years the truth of the matter is that America has been practising residency based taxation as it is practised by every other country. The American need to held to this standard that they themselves have followed.

  5. Excellent points Recalcitrant. The last one is what Allison Christians calls “tax treaty override.” It’s unfortunate Ms. Parillo didn’t interview her.
    In addition, the author didn’t interview prominent constitutional lawyer Joe Arvay, CCLA’s Nathalie DesRosiers or Canada’s Privacy Commissioner, Jennifer Stoddart.
    All three are opposed to FATCA for different reasons. All three are among Canada’s Top 25 Influential Lawyers.
    Elizabeth May is also among the Top 25 and is “vigilant for all Canadians caught up in this sorry mess.”

  6. I think it’s quite alarming Canadian privacy and security lawyers were dismissive of the very real threat of FATCA to Canadian citizens and residents.
    As everyone knows, I am not a lawyer. However, I think this statement from one of the lawyers interviewed is not complete. “There has to be some disadvantage that’s imposed on that person that’s linked to or perpetuates some prejudice or some kind of stereotype.”
    The very first Charter challenge was based on citizenship. It related to a requirement of the BC Law Society that lawyers be Canadian citizens. The Supreme Court of Canada determined in that case: iSection 15, “as well as protecting individuals and groups from discrimination on the basis of the named grounds, also protects them from discrimination on grounds which are not named but which are analogous to those named. Citizenship is considered an analogous ground, and s. 15 therefore protects Andrews and others from discrimination because of citizenship.”
    I may not be a lawyer, but I don’t see any reference there to stereotyping or prejudice. The Supreme Court determined the requirement was “not a reasonable limit.”
    Another lawyer in the Tax Notes article made a comparison to the tax credit available to people over 65 and not those under 65. He said anyone going to court to challenge that would “be laughed at.”
    To me, a government program set up to meet the specific needs of senior Canadian citizens and residents is very different than a demand that a foreign government be given private financial information on a group of Canadian citizens due to birthplace or other citizenship.
    Mr. Lubetsky said he finds it highly unlikely that the Court would accept an argument that requiring financial institutions to flag accounts showing indicia of U.S. citizenship is discrimination in violation of section 15(1). “I don’t think one could argue that legislation adopting the IGA’s due diligence requirements is sending a message that American citizens, or people born in the States, are somehow less worthy, or that this is an attack on the dignity of U.S. citizens.”
    In a the complex Chua vs Ministry of National Revenue (Thanks to Tim for posting this in another thread) MNR was trying to collect taxes for IRS for a period when Ms. Chua was a US citizen.
    This decision did refer to the stereotype, disadvantage and dignity issues: “In general terms, the purpose of s. 15(1) is to prevent the violation of essential human dignity and freedom through the imposition of disadvantage, stereotyping, or political or social prejudice, and to promote a society in which all persons enjoy equal recognition at law as human beings or as members of Canadian society, equally capable and equally deserving of concern, respect and consideration.”
    This decision stated: “In the matter before me the applicant is a member of a group of Convention citizens, who is being disadvantaged because of her previous group (i.e., non-citizen). In this case, the law in question has a discriminatory purpose or effect.”
    The Court found Ms. Chua’s rights as a “convention citizen” under Section 15 were “infringed in that taxpayer member of disadvantaged group of Convention citizens because of previous status as non-citizen — Impugned law having discriminatory purpose, effect.”
    There is a lot more detail and legalese in the actual decision, but my non-lawyer mind reads that to indicate Canadian courts will protect the rights of Canadian citizens.
    The information at the beginning of this decision seems to apply to our situation today:
    “This case concerns discrimination between one group of Canadian citizens in the position of the applicant (Convention citizens) and all other “Canadian citizens”. Under subsection 15(1) of the Charter, true equality does not necessarily result from identical treatment. The Court must look at the impact of the law upon the individual or group to whom it applies and decide whether the applicant and others in the “Convention citizens” group are being discriminated against on grounds relating to personal characteristics. The impact of the Convention upon the applicant is three-fold. First, her human dignity is affected since Convention citizens have less rights than all other Canadian citizens. Second, Convention citizens are deprived of fundamental justice. For example, applicant had not been given fair notice of the Third Protocol in 1991 at which time she could have resorted to the U.S. courts. Third, her property in Canada was put at risk through seizure by a foreign state. She could lose her property, whereas a long-standing Canadian citizen would not. Accordingly, the applicant is now vulnerable to breaches of procedural and substantive justice in respect of the escalating IRS claim. The effect of the provision on the applicant and Convention citizens is unjust. Section 15 of the Charter was infringed in that the applicant is a member of a disadvantaged group because of her previous status as a non-citizen. The impugned law has a discriminatory purpose or effect. Convention citizens are a small group for whom the consequences of the retroactive portion of the Convention are severe.”
    If any lawyers, accountants or the author of the Tax Notes article would like to join this discussion, we would welcome them.
    I would especially be interested in what their opinion would be on this if it were the Chinese, Russian, Iraqi, or Eritrean government demanding private financial information on Canadian citizens or residents born in those countries (and of joint accounts held with their Canadian-born spouses)

    1. Good points, Blaze. There is no way in which citizenship based taxation does not violate the rights that any U.S. person enjoys under the Canadian Constitution and the Charter.
      It is a U.S. modern day version of Apartheid that it is seeking to enlist the financial system of the world to enforce on a specific disadvantaged group, namely U.S. non-resident persons.
      There isn’t a single one of these lawyers who can claim that U.S. person status enhances the life of the person who lives outside of U.S. territory. You have to go without an employer sponsored retirement plan, you can’t save for your children’s college education, can’t have an account with your spouse, and going forward it is highly unlikely that anyone would want to even be married to a U.S. person. Citizenship based taxation denies the U.S. person the ability to enter into even the most basic of human relationships, marriage. The list of disadvantages goes on and on.

    2. @Recalcitrant: I remember OMG once said US wants to declare everyone a “US person” if they ever French kissed a US citizen
      I miss OMG. Has anyone heard from her? I hope she’s OK and just decided to put all this FATCA, IRS stuff behind her.
      Perhaps one day marriages between “US persons” and “non-US persons” will be illegal like interracial marriages once were in some states and like same sex marriage once was in Canada (and still is in many parts of the world). Maybe we will all have to marry each other. Yikes! Can you imagine what FATCA would do to us then?!?
      Seriously, I know this issue has taken a huge toll on some marriages and relationships. I know others have renounced or relinquished to protect the rights and assets of their non-US spouses and families.

  7. @Recalcitrant: I was especially pleased to see the Chua case included this:
    “The applicant became a citizen of Canada on October 31, 1990. As stated in the Commemoration of Canadian Citizenship certificate presented to her:
    Under the provisions of the Citizenship Act, a Canadian citizen is entitled to all the rights and privileges and is subject to all the duties and responsibilities of being a Canadian citizen.”
    That is the point I have raised in my letters to Flaherty, Harper, Baird, Kenney, Schoom and many others.
    Do we or do we not “have all the rights and privileges” of a Canadian citizen? The answer should be a simple but resounding yes. That should be the end of the discussion for us.
    For residents who are not citizens, it may be a bit more complicated, but they also have rights. I would think allowing US to have information about them while refusing Eritrea information about their citizens living in Canada would be discrimination. Plus, Canadian banks cannot ask about place of birth or other citizenship under Canadian banking, privacy and human rights laws. I would think the courts would not look favourably on the efforts of any bank to do so.
    So, we keep coming back to the key issue. Canadian banks have no way to determine who is and who isn’t a “US person.” Even if there was an IGA, CRA does not know who is and who isn’t a “US person.”
    And, of course, the term “US person” has no legal standing in Canada. Just like Chinese person, Russian person or Eritrean person has no legal standing (except those are far more likely to cause a government and public outcry!)

  8. There is nothing in Canadian law that defines or bestows “US citizenship” upon any Canadian citizen based upon their place of birth. Canadian laws and Canadian banks cannot be arbiters of US citizenship – or any other citizenship than Canadian, for that matter.
    Therefore, any Canadian law or business practice that makes decisions based solely upon US place of birth indicia is practicing pure discrimination based on national origin (not citizenship) because it is seeking a place of birth, not a passport or similar documentation of current citizenship. In fact, certain Canadians born in the US may assert that, under US law, they also committed expatriating acts in becoming Canadian with the intent to relinquish US citizenship.
    And finally, the exposure to harm resulting from this discrimination is a real hazard and would shape the court’s judgement. “Exposure to harm” was key factor in the InSite safe injection facility Supreme Court of Canada victory

  9. @Wondering: Well put.
    That, of course, is compounded for the banks by the fact they cannot ask about place of birth and can only accept Canadian birth certificates as ID for opening an account. They cannot accept a foreign birth certificate.

  10. @Blaze, @Wondering- The both of you raise a very interesting and deeply disturbing point when you discuss the use of “indicia” to ferret out U.S. persons. I don’t really think that the rest of the world has given any thought to the reality of “identity creep” which is to say the possibility that the id that is issued by a foreign power could gain legal status alongside the id which is issued by the local government.
    I also think about this when it comes to the fact that the person who a financial institution puts in charge of overseeing its FATCA compliance activities will be given a U.S. identification number even though that person may not be a U.S. person. Also think about the conflict of interest when you realize that this individual’s responsibilities could at some point be unilaterally changed by the U.S. in such a way as to compel that individual to act against the interest of the country of his/her citizenship. FATCA is very dangerous with regards to the sovereignty of any nation that is not the U.S.

  11. I will add for now that I have had a copy of this article for a while so I have been of aware of the arguments made in it. I don’t agree with the lawyer quoted on Section 15(1) which I think is almost a certain slam dunk. Once you get into the Section 1 arguments it gets a bit more tricky but hardly impossible.
    My personal belief at this point is we are still several rounds of fighting away from this becoming an issue for the judiciary. The biggest problem is there is still a lack of understanding of the issue in Ottawa and quite frankly Washington too. This is starting to change but only very slowly. The main consequence of all of our efforts seems to be at this point is that given Canada has not yet signed and ratified a deal that if/when it does Parliament will be much more educated on the issue than the UK Parliament was when they ratified their IGA this past spring.

    1. I will add currently right now Parliament is scheduled back on September 16th however, it is widely expected that there will be a fall throne speech so Parliament might not be back until late September or early October. If an IGA is signed prior to then there needs to be a minimum of 21 sitting days before any ratification and implementation legislation is introduced in the House. So that brings us after the October recess and perhaps even into November before legislation can even be introduced. So the odds of this thing getting wrapped up this year even if the government puts its foot to the metal are quite low.

  12. Mr. Lubetsky’s argument compares discrimination based on birthplace to discrimination based on age: “Many laws make distinctions based on immutable personal characteristics that result in adverse treatment,” he said. “For example, in Canada persons over age 65 get a special tax credit. For those under age 65, that’s adverse treatment. I’m under 65 and don’t get this special tax credit — I’m being treated adversely based on a personal immutable characteristic, my age.”
    This argument is specious. Age is not an immutable characteristic; our age is always changing. If a person is not currently eligible for the seniors’ tax credit now, they will get their turn eventually. Also, age is a physical reality that is a determinate of certain capacities and competencies and probabilities – it is an actuarial reality not simply a personal characteristic. Charging a 70 year old high rates for disability insurance, or refusal to sell alcohol to a 15 year old person, are not a violations of the Charter.
    FATCA is a clear affront to the dignity of US-born Canadian citizens. Take the most egregious example: a Canadian born in US hospital because her Canadian mother was sent there due to high risk pregnancy. In 2002. This practice was noted in the Globe & Mail, February 20, 2002 entitled “Ontario’s Border Babies Stir Health-care Storm”.
    “Sending Ontario women with high-risk pregnancies to Buffalo for medical treatment shows how the health-care system has been ‘cut to the bone’ Liberal health critic Lyn McLeod said yesterday….
    New Democrat health critic Shelley Martel said the fact that at least seven pregnant women and three babies were sent to the United States in the past two weeks alone shows that the health-care system has been “cut to the bone.”
    A “border-baby” born in that Buffalo hospital to Canadian parents is a Canadian citizen at birth. Yet now this person would suffer harmful discrimination under FATCA, even though they returned to Canada within days of being born, and even if they subsequently had no economic or residential connection of any kind with the US. They are treated with negative and unwanted distinction simply because they were born in a Buffalo hospital due to medical needs.
    This certainly looks like “distinctions that relate to the dignity and the worth of the individual, and that send a message that members of this disadvantaged group are somehow not as worthy of protection as other people.”
    Naturally, some will say “well that border baby can simply renounce their US citizenship”. Let’s add another factor: unfortunately the “border-baby” person is born with a congenital mental disability which makes it impossible for them to fully comprehend the concept of renouncing US citizenship. Their parents cannot renounce on their behalf. So now, due to their place of birth AND mental disability, they cannot escape to imposition of FATCA by any means, because they have a US place of birth AND cannot present their bank with a Certificate of Loss or (US) Nationality. (Blogger “Calgary 411” has a son in a similar position and has been heroically vocal about his outrageously unfair situation).
    Finally, consider that the number of Canadians who could be affected by FATCA as so-called “US persons” is estimated to be anywhere from 600,000 to 1,000,000. That is roughly equal to the number of Canadians who are First Nations people. So the potential social impact of wholesale discrimination against such a large group could factor in a court’s judgement.

  13. Superb points, Recalcitrant, Tim and Wondering. I continue to rely more on opinions of constitutional experts like Peter Hogg, Joe Arvay, Abby Deshman and Nathalie DesRosiers on this matter.
    As Tim noted, we are “several rounds away” from dealing with this through the courts. Both Joe Arvay and CCLA are of the opinion it is premature for legal action until we see what form an IGA will take or what the banks will actually do.
    It is still important we remain vigilant in fighting against this so our rights as Canadian citizens and residents are protected and court action does not become necessary.
    I should mention here that this article was first brought to my attention by Tim. I then sought copyright approval to post it here. I should have included Tim’s usual persistence tenacity in digging up and sharing information in my original post. Thanks Tim!

    1. Point of clarification. I said I continue to rely more on opinions of constitutional experts like Peter Hogg, Joe Arvay, Abby Deshman and Nathalie DesRosiers.
      I should have added: over those of the lawyers quoted in the article.
      I hope no one felt I was slighting their input by my incomplete sentence.
      With that said, I hope Timothy Banks may take me up on my invitation to him on Twitter to join the discussion here.

  14. Thanks Blaze ( and Tim) for bringing this article to our attention. It’s important to understand other sides of the Charter question, even if we don’t agree with them.
    The article appears to be based primarily on Peter Hogg’s short letter to Finance last year. I don’t think this is fair to Mr. Hogg. I’m sure he could write a 200-300 page legal brief on the subject. The letter to Finance was not meant to explore all aspects of the issue.
    Something that struck me was the following:
    “An interesting issue, Banks said, is whether a constitutional challenge would be brought by an individual or by a group via public interest litigation. “Whether a court would give the group standing to do that is a big question,” he said. “You can imagine that U.S. citizens living in Canada who might be the subject of this litigation may be reluctant to bring a claim in their own name. So we’d have to wait and see whether a court would grant a public interest group standing to bring the claim instead.”
    I think the approach to take in in launching a legal battle is something that should be thoroughly discussed in the near future. I’ve felt for some time that a legally registered organization with a Board and by-laws may be a necessity, for both legal and media coverage reasons. Perhaps this can be discussed in a separate posting during the summer.

  15. Interesting idea Hazy. Maybe Fighting Against Taxing Canadians by America (FATCA) or Federated Alliance of Canadian Taxpayers Against (FATCA) FATCA?
    Seriously, your idea may have some merit. What do others think?
    Thanks for the post Just Me. If I read this correctly, NSA snooping may be legal, but there are human rights implications. That again reminds me of what Henry Kissinger said. “The illegal we do immediately. The unconstitutional takes a little longer.”
    Patrick Johnson (@CanadaFan124) found Timothy Banks tweeted a link to the Tax Notes article today. Patrick tweeted the Chua decision to Mr. Banks and to me.
    In turn, I tweeted several comments to Mr. Banks (TM_Banks), including an invitation to join discussions of “anti-FATCA crusaders” here at Maple Sandbox. I hope he accepts the offer.
    Those of you who are on Twitter may want to join in there.

  16. This is all very interesting yet hard to read. “Everyone is getting the same deal, take it or leave it.” They certainly don’t seem to care much about the ill will this is causing across Canada. They also still keep referring to “U.S. persons.” No mention of the fall out. I’m having to renounce as my spouse refuses to turn over his private data to the big brother data monster south of us. He’s not a “U.S. person” and neither is my son. There are MANY people in similar situations and I find their lack of any care whatsoever on this shocking.
    Hopefully, they are wrong and Peter Hogg is right. I do believe he is. How can it not be a challenge to the Charter to tell Canadian citizens they must waive privacy rights, be treated as unequal to other Canadians or perhaps be denied banking? I’m perplexed by those pushing for this. On one hand you have people utterly disgusted with recent NSA revelations and the same people are promoting FATCA.

  17. @Atticus: I’ve learned just one thing from this whole debacle. If you ask the same question of five lawyers, you will get nine different answers and opinions.
    With that said, I think Peter Hogg, Joe Arvay and CCLA are more knowledgeable and reliable on constitutional matters than privacy and security lawyers.

  18. Just reading again tonight and a couple comments stood out for me…
    Lubetsky said
    “We don’t tax our expatriates like America does, but I don’t think we regard taxation of expatriate citizens as necessarily something that’s morally reprehensible.”
    What? Where is he coming from? I guess he hasn’t heard of Canadian actions against Eritrea, eh? Only morally reprehensible when it is a small 3rd world poor country, but not a big deal if it is the U.S. Hegemon!
    Then this, which strips away the charade that FATCA is a multilateral agreement:
    Treasury officials have repeatedly said that the model IGAs are just that — a model — and that the U.S. WILL NOT negotiate customized IGAs to address a jurisdiction’s particular concerns.
    That is what we call a one way unilateral cram-down
    and finally for tonight, this reality acknowledgement from Turner…
    “A key tension here is that FATCA is meant to apply across the world, but in doing so it affects the many U.S. citizens who live in Canada,” Turner said. “People aren’t hiding their money in Canadian banks. U.S. citizens who are resident in Canada, if they’re paying their Canadian tax, probably don’t owe any U.S. tax because of the foreign tax credit. So there ISN”T A REAL DRAIN on the U.S. fisc from Americans living in Canada.”
    and so, if it isn’t for the money, then why the insistence by the U.S? Well, Turner for one, doesn’t really say, other than U.S hubris insists on “no special deals” ‘Everyone’s getting the same deal, you can take it or leave it.’
    Those tax chattel are mine! And this is the assertion of that power!
    Some negotiating partner, eh?!

  19. @Just Me: Plus, Turner had this to say: These countries are starting to say ‘Wait a minute, this may be to our benefit. Maybe we should do this so we can get information on our own citizens,’” she said.
    “So at the end of the day, I suspect Canada will sign a Model 1 reciprocal agreement,”
    She’s missing a huge point. Canada has had a long-standing tax treaty with US with true reciprocity–information exchange on income in one country for residents of the other country. That helps combat tax evasion on both sides of the border, while being fair, effective and efficient for individuals, governments and banks.
    There would be no added benefit to Canada from an IGA–unless Canada decides to tax Canadians like Celine Dion, Michael J Fox, Wayne Gretzky, Donald Sutherland, William Shatner, Alex and other famous (and ordinary) Canadians living in US. I can’t see that ever happening.
    As John Marshall, US Supreme Court Chief Justice said in 1819, “The power to tax is the power to destroy.”
    Could that be what this is all about? The power to destroy the lives of those who dare to have the audacity to have full, productive lives outside of US?
    The US-Canada Tax Treaty could be a model for the world to truly try to combat tax cheating. Instead, IRS and DOT bullies are out to use their “power to tax” as a “power to destroy.” They aren’t just out to destroy US citizens. They are out to bring the rest of the world down with them.
    This article doesn’t deal with FATCA, but it raises some fascinating points–including the fact it costs IRS $40 for each $100 it collects.
    So, how much will it cost for FATCA and FBAR for $0 owed?
    Back to Just Me’s point. Why indeed.

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