The arrangement would allow Ottawa to soften the blow for Canada – and the roughly one million Americans who live here – when it begins complying with the more controversial aspects of a sweeping new U.S. law that takes effect on Jan. 1.
The Foreign Account Tax Compliance Act (FATCA) was signed into law in March 2010, and many of its provisions start on Jan. 1, 2014. It requires financial institutions in other countries to tell the U.S. Internal Revenue Service about Americans’ offshore accounts worth more than $50,000. Canada and the U.S. are negotiating whether Ottawa or the financial institutions will send the information, but the clock is ticking. If no deal is reached, banks operating in Canada will have to give the data directly to the IRS.
Canada and the U.S. already share financial information to track activity like money laundering and terrorist financing, but the U.S. tax act creates a need to sort out exactly what will be shared and how.
Canadian banks have urged Ottawa to take on the reporting duties through the Canada Revenue Agency, which could ensure that privacy laws are respected when information is sent south of the border.
Over the past year, the U.S. has signed bilateral deals to enforce the act with Germany, Japan, Spain, Norway, Switzerland, Ireland, Mexico, Denmark and the United Kingdom. The FATCA has created considerable concern for Americans in Canada, given that many have long ignored a U.S. rule requiring citizens to file annual tax returns even if they are not earning income in the United States.
The leaders of the G8 recently pledged support for the automatic transfer of financial information to crack down on global tax evasion.
Critics said the pledges were vague, but more concrete proposals are in the works through the G20 and the OECD. G20 finance ministers and central bankers meet in Moscow July 19-20 and G20 leaders meet in St. Petersburg Sept. 5-6.
The U.S. law – which would affect all but the smallest banks – adds some urgency to the push for a global tax exchange system, and it is fast becoming the model.
“We continue to work with our U.S. counterparts to develop an approach that both countries will find agreeable, with a view towards concluding an agreement in the near future,” said Kathleen Perchaluk, a spokesperson for Finance Minister Jim Flaherty.
“Canada supports the statements in the G8 summit communiqué to develop and adopt a multilateral standard for the automatic exchange of tax information and that the standard be based on the FATCA model.”
There has been little debate on the issue so far, partly because no details on the talks between Canada and the U.S. have been released. However, Ottawa is promising to make the deal public once it is signed.
Privacy Commissioner Jennifer Stoddart is keeping an eye on the issue.
The commissioner’s office and the Finance Ministry have discussed the negotiations with the United States, said Valerie Lawton, a spokesperson for the commissioner. She also said Ms. Stoddart has received “a few dozen” inquiries about the U.S. law, but formal complaints cannot be filed until it is in effect.
Ms. Lawton points out that if Canadian financial institutions transfer the information to the United States, they will still have to comply with Canada’s private-sector privacy legislation, the Personal Information Protection and Electronic Documents Act.
“The privacy implications of FATCA in Canada will depend on the details, which have yet to be determined,” she said. “Many of the people who have contacted us have expressed concern about their personal information being shared with U.S. authorities.”
That concern is warranted, said Queen’s law professor Arthur Cockfield, who specializes in tax law.
“No foreign government should be able to come into our country and demand personal information about our own citizens and residents,” he said, noting that the negotiations are aimed at smoothing over this problem by ensuring exchanges are mutual and at the government-to-government level.
“There’s really been a conceptual shift around FATCA in the last, say, three or four months,” he said. “It was mainly hated by Canada and at least some European governments.”
Mr. Cockfield said stories on tax evasion by the International Consortium of Investigative Journalists, which began in April and for which he provided commentary, have clearly changed the international political scene as European leaders began promising automatic exchanges like FATCA.
“The basic idea [of] FATCA is quite problematic. It’s probably very expensive for our banks and foreign banks to implement, but it does seem to have played an influential role in encouraging automatic information exchange,” he said.
“The G8 decided not to really make any decision and to let the G20 and more importantly the OECD develop an appropriate framework. I think from a political perspective, it’s still up in the air whether we’ll see this multilateral information exchange. But I’ve written about it 13 years ago, and I’d love to see it.”
Original Article
Source: theglobeandmail.com
Author: BILL CURRY
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