At the top of the list of “must have” countries on which the U.S. Treasury Department needs to force submission to the “Foreign Account Tax Compliance Act” (FATCA) is our closest ally and biggest trading partner: Canada. Unless Ottawa agrees to sign on the dotted line to permit enforcement of this ill-conceived U.S. law against its own Canadian institutions and citizens, prospects for compelling the rest of the world to fall into line lose all credibility.
According to Treasury’s earlier expectations, Ottawa was to have knuckled under by the end of 2012. That didn’t happen, though the Department continues to make increasingly absurd and nonfactual claims that the world is stampeding to sign so-called “intergovernmental agreements” (IGAs) that enlist foreign governments as enforcers for the IRS. The first one to run up the white flag, unsurprisingly, was the United Kingdom, which has already finalized regulations that blatantly enforce this foreign (i.e., American) law on British institutions and citizens (“The International Tax Compliance (United States of America) Regulations 2013”), at the cost of hundreds of millions if not billions of pounds – in return for nothing from the U.S. (Can anyone imagine Congress’s passing a law authorizing the Treasury Department to issue regulations on American firms and citizens to impost The International XYZ Compliance (China, France, Germany – take your pick) Regulations 2013?)
In Ottawa, the Conservative government of Prime Minister Stephen Harper and Finance Minister Jim Flaherty is under strong pressure to follow London’s poodle-like example. The problem is, Canada is a country that claims to respect the rule of law, including serious privacy and human rights safeguards, notably under the Canadian Charter of Rights and Freedoms. It is also a country in which a million Canadian citizens, perhaps even more, would be considered “U.S. Persons,” whose personal financial information would be sent to the IRS (and then over to U.S. intelligence agencies!) without even a suspicion of wrongdoing.
Standing Up for the Rights and Civil Liberties of Canadian Citizens and Residents
To be fair, Prime Minister Harper and Minister Flaherty are on record as objecting to FATCA in principle. But as with officials of other governments around the world, they have been subject to dire threats of sanctions from the Treasury Department, misguided pleas from some financial sectors that an IGA would lessen the negative impact of FATCA (it won’t), and a cheerleading section of tax lawyers, accountants, consultants, and software firms anticipating a compliance pig-out. This has seriously distorted Canadian officials’ awareness of their available options.
Now comes some serious counter-pressure from the Opposition, which may help clarify where Canada stands. While smaller parties like the Progressive Canadians (no representation yet in the House of Commons) and Greens (one Member, Elizabeth May) have been commendably forthright in their resistance to FATCA, the major Opposition party, the New Democratic Party (NDP), has been largely silent, or even passively supportive of FATCA in the mistaken belief it is merely a measure directed against American “tax cheats.”
The NDP still hasn’t come out against FATCA as such. But in a significant development, Murray Rankin, the NDP’s Official Opposition Critic for National Revenue, wrote to Minister Flaherty on September 25 laying out standards that must not be crossed in an IGA. (For denizens of the country south of the 49th parallel who may not be familiar with Canada’s parliamentary system, the “Official Opposition Critic” is the equivalent of “Shadow Minister” in the British system – the Opposition Member of Parliament who would take over the designated Ministry if the NDP “ Shadow Cabinet” replaces the Conservatives.)
In his letter, Rankin expresses “serious concerns” regarding Flaherty’s negotiations with Treasury to “oblige Canada to enact laws and regulations requiring Canadian financial institutions to comply with this U.S.-based legislation,” i.e., FATCA. He also cites the “lack of transparency” and consultation in the “closed door negotiations.” Exactly so. What is being hidden from not only the Opposition but from the public?
“New Democrats are concerned with the prospect of a foreign nation unilaterally imposing obligations on Canadian banks to disclose personal information. The Canadian Government has a responsibility to protect Canada’s tax base, and while we understand the United States’ desire to protect their own tax base, this should not come at the cost of the rights of individuals residing in our own country. Cracking down on tax cheats should occur through international cooperation rather than unilateral action.
“What’s more, the secrecy of the negotiations over this agreement has left Canadians in the dark as to the integrity of their personal banking information. The Canadian government should be standing up for the civil liberties of Canadians. Furthermore, the Conservative government must ensure that any agreement reached is fair for Canada.
“In the interest of transparency, fair taxation and respect for privacy rights, we are asking the government to reject any agreement that violates the rights [of] Canadians or that fails to offer Canada equal benefits to those provided to the United States.” [emphasis added; the full text of the Rankin letter appears at the end of this bulletin.]
Opposing a Bad IGA Means Opposing FATCA
The last part is particularly important. The fact is, because the U.S. Treasury Department is only willing to negotiate certain details of the supposedly reciprocal one-size-fits-all IGA text (virtually identical to the one signed by the UK, Germany, and handful of other countries), there can be no IGA which Canada could possibly sign that would not violate Canadians’ rights. Nor could any IGA the Treasury Department conceivably would sign with Ottawa offer Canada “equal benefits” because of differences in the two countries tax systems – even if Treasury’s promises of reciprocity were honored, which they won’t be.
In short, whether it was Rankin’s intention or not, his letter essentially is saying the NDP will oppose the IGA currently being negotiated by Flaherty. Indeed, since the same defects he identifies in his letter – violations of the rights and civil liberties of Canadian citizens and residents (“individuals residing in our own country”), inequality with the U.S. – would apply if Canada allows extraterritorial enforcement of FATCA even without an IGA, Rankin’s letter is tantamount to opposing FATCA itself.
In Canada, as in much of the rest of the world, the question of how to face up to the FATCA threat has been poisoned by the baseless belief that no alternative is available. (For example, one prominent Canadian financial industry leader critical of FATCA has said that financial institutions have “no choice but to comply with U.S. law because the penalties can be onerous — a 30-per-cent tax on U.S.-source income, . . . authorities around the world have come to the conclusion they must deal with the United States to make this as administratively feasible as possible.”) But dealing with the Treasury Department “to make this as administratively feasible as possible” can mean only walking right into the IGA sellout against which Rankin rightly warns. It’s a result that no one in Canada could possibly welcome, except for a few who might share the views of U.S.-born Canadian commentator Diane Francis, who’s at least honest about favoring Canada’s absorption by her former country . . .
Time for All Canadians to do the Right Thing – and Americans Too
At the time of this RepealFATCA.com bulletin, Flaherty had not made any public answer to Rankin’s letter, though it’s conceivable he has done so privately. (The letter was also CC’d to Peggy Nash, Official Opposition Critic for Finance – NDP’s “shadow” claimant for Flaherty’s job!)
It’s in the interest of neither Canadians nor Americans to keep this matter under wraps. The Opposition (including the Liberals as well as the NDP) needs to challenge the Harper Government to come clean about what they’re preparing to give away to the Treasury before any IGA is signed, not afterwards. On the merits, the Government should welcome such an inquiry, as it would give Harper, Flaherty, and other principled Members of the ruling Conservatives an opportunity to jump out of the dead end they’ve been led into and stand up for Canada’s sovereignty and Canadians’ rights. They should walk away from the IGA negotiating table, and tell Treasury that Canada’s answer on FATCA is just, plain No.
A firm, public rejection of FATCA from Ottawa, with an IGA or without it, and a preparedness to implement any necessary countermeasures if Treasury is foolish enough to try to impose FATCA unilaterally, would be the surest way to avoid its “onerous penalties.” Ottawa’s rebuff would in turn strike a major blow against the already faltering IGA process and set the stage for repeal of “the worst law most Americans have never heard of.”
James George Jatras
The Rankin letter text follows:
September 25, 2013
The Honourable James M. Flaherty, P.C., M.P.
Minister of Finance
Department of Finance Canada
140 O'Connor Street
Ottawa, Ontario K1A 0G5
As Official Opposition Critic for National Revenue, I am writing to express my serious concerns regarding negotiations with the United States over the implementation of the U.S. Foreign Account Tax Compliance Act (FATCA).
Currently, Canada is engaged in closed door negotiations with the U.S. over an Intergovernmental Agreement (IGA) for the implementation of FATCA in Canada. Such an agreement could oblige Canada to enact laws and regulations requiring Canadian financial institutions to comply with this U.S.-based legislation. New Democrats have serious concerns about the lack of transparency and consultation during these negotiations and the potential for such an agreement to infringe on the rights of Canadians and fail to offer reciprocal benefits to both parties.
Reports suggest that if implemented, an IGA may require Canadian banks, investment funds and other financial institutions to disclose annually to the U.S. Internal Revenue Service (IRS) information on accounts held by American citizens, including dual citizens in Canada. Failure to disclose account information could result in a withholding tax applied to U.S. income earned by the institution or by the account holder. We are concerned that these negotiations may allow the United States to bypass the established exchange of information between the IRS and the Canada Revenue Agency and instead get information directly from Canadian financial institutions. Concerns have been raised that such a system could potentially violate existing Canadian privacy laws. Furthermore, at this time it is unclear if reciprocal information would be granted in return.
New Democrats are concerned with the prospect of a foreign nation unilaterally imposing obligations on Canadian banks to disclose personal information. The Canadian Government has a responsibility to protect Canada’s tax base, and while we understand the United States’ desire to protect their own tax base, this should not come at the cost of the rights of individuals residing in our own country. Cracking down on tax cheats should occur through international cooperation rather than unilateral action.
What’s more, the secrecy of the negotiations over this agreement has left Canadians in the dark as to the integrity of their personal banking information. The Canadian government should be standing up for the civil liberties of Canadians. Furthermore, the Conservative government must ensure that any agreement reached is fair for Canada.
In the interest of transparency, fair taxation and respect for privacy rights, we are asking the government to reject any agreement that violates the rights Canadians or that fails to offer Canada equal benefits to those provided to the United States.
In light of the important issues at stake, we urge the government to bring transparency to this process and inform Parliamentarians on the state of negotiations.
I appreciate your time and look forward to your response.
Murray Rankin, Member of Parliament for Victoria
Official Opposition Critic for National Revenue
cc: Peggy Nash, Official Opposition Critic for Finance