FATCA Flexes and Frightens: Highly-Superficial Canada-U.S. Agreement on Foreign Account Compliance

7 Feb

The Canadian Finance and National Revenue ministers announced smugly on Wednesday that, after lengthy negotiations, Canada and the United States have signed an agreement under the Canada-U.S. tax treaty, deferring the application of the dreaded U.S. Foreign Account Tax Compliance Act. Enacted in 2010, FATCA requires non-U.S. financial institutions to report to the Internal Revenue Service the bank accounts held by non-resident U.S. taxpayers. Failure to comply subjects a financial institution or its account holders to an array of sanctions, including special withholding taxes on payments to them from the United States.

Without an inter-governmental agreement in place, this unprecedented invasion of privacy would have been imposed on Canadian financial institutions and their clients as of July 1, 2014.

Under the new agreement, financial institutions in Canada will not report any information directly to the Service. Rather, relevant information on accounts held by U.S. residents and U.S. citizens will be reported to the Canada Revenue Agency. Big difference !! Revenue Canada will then exchange the information with the Service, under the very limited and vague safeguards in the tax treaty. This rather cosmetic change is believed to bring the process within Canadian privacy laws.

This so-called protection of privacy is in fact a type of furtive and illegal adoption of a Canadian FATCA by administrative decree. The Service is only too happy, under the agreement, to provide Revenue Canada “with enhanced and increased” information on bank accounts of Canadian residents at U.S. banks.

Revenue Canada vainly tries to reassure the public that significant exemptions and relief have been obtained. Certain accounts are exempt from FATCA and will not be reportable: Registered Retirement Savings Plans, Registered Retirement Income Funds, Registered Disability Savings Plans, Tax-Free Savings Accounts, and others. This is insulting nonsense, since Revenue Canada already has all that information !

More bizarrely, smaller deposit-taking institutions, such as credit unions, with assets of less than $175 million, will be exempt. These are presumably the plumbers’ credit union-type organizations, that U.S. citizens abroad wouldn’t even be eligible to join, anyway.

The 30 percent FATCA withholding tax will not apply to clients of Canadian financial institutions, and can apply to a Canadian financial institution only if it is in significant and long-term non-compliance with its obligations under the agreement.

More tellingly, in September 2013, our fearless G-20 “leaders” committed already to automatic exchange of tax information as the new global standard, and endorsed an OECD proposal to develop a global model for the automatic exchange of tax information. They also signaled an intention to begin exchanging information automatically on tax matters among G-20 members by the end of 2015.

So at least we know now how efficiently our taxes are applied, to the inflated salaries of the drafters of these highly-superficially protective agreements, and to their related travel and deliciously-catered negotiation sessions.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: