Abstract
The focus of this chapter is on providing a policy background to and an examination of the Foreign Account Tax Compliance Act, a unique piece of US tax legislation that has no precedent in the history of international tax law. As detailed in Chapter 3, the exchange of information (EOI) upon request standard in use between 2002 and 2016 is flawed, but that is not the only weakness in the OECD’s efforts to combat tax evasion. As explained in Chapter 8, the US FATCA initiative has been a driving force and an impetus for the G20 and OECD’s launch of automatic exchange of information (Automatic Exchange). While the goal behind FATCA, noted below, of curbing the use of tax havens to hide income of US taxpayers residing in the United States is consistent with the principles of equity in international tax policy, discussed in Chapter 2, the same cannot be said of FATCA’s application to millions of individuals in Canada, the United Kingdom, and the European Union who are US nationals but not tax evaders. The new regime acts to drive these people into the enforcement cannons of the IRS, which, as described in Chapter 10, can be financially and psychologically traumatizing. As explained in Chapter 11, refocusing American enforcement on residence rather than nationality would make the administration and enforcement of the data collected through FATCA more consistent with the principles of equity in international tax policy.
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Notes
- 1.
Subtitle A of Title V of the Hiring Incentives to Restore Employment Act of 2010, Pub L No 111–147 enacted on 18 March 2010 [FATCA].
- 2.
Ibid. FATCA was in large measure a response to the tax evasion and Swiss bank scandals that Congress was investigating in 2008 and 2009: see Scott D Michel & H David Rosenbloom, “FATCA and Foreign Bank Accounts: Has the U.S. Overreached?” 62:9 Tax Notes International 709 (30 May 2011); Stafford Smiley, “Qualified Intermediaries, the EU Savings Directive, TRACE — What Does FATCA Really Add?” (2011) 38 Journal of Corporate Taxation 20 at 25, noting that the bank scandals involving UBS and Liechtenstein were closely watched by Senator Carl Levin, chair of the Permanent Subcommittee on Investigations of the Senate Committee on Homeland Security and Governmental Affairs, which conducted extensive hearings on tax havens and the use of FFIs by US tax evaders.
- 3.
See final FATCA regulations implementing Chapter 4, Subtitle A of the Internal Revenue Code, USC 26 (1986) of 1986, as amended, and the Treasury Regulations issued thereunder [Code]: Regulations relating to Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities, 26 CFR Parts 1 and 301, effective 28 January 2013 [Final FATCA Regulations].
- 4.
- 5.
See also United States, Department of the Treasury, Press Release, “Joint Statement from the United States, France, Germany, Italy, Spain and the United Kingdom regarding an Intergovernmental Approach to Improving International Tax Compliance and Implementing FATCA” (8 February 2012), online: www.treasury.gov/press-center/press-releases/Documents/020712%20Treasury%20IRS%20FATCA%20Joint%20Statement.pdf [Intergovernmental Joint Statement].
- 6.
See Smiley, above note 2 at 25; Itai Grinberg, “The Battle over Taxing Offshore Accounts” (2012) 60 UCLA Law Review 304 at 334.
- 7.
See Smiley, above note 2 at 5; Grinberg, above note 6 at 334.
- 8.
See Grinberg, above note 6 at 334, noting that a purpose of FATCA is ensuring, by coercion, the participation of FFIs in an automatic information-reporting system. Professor Grinberg also discusses the problems posed by the unilateral reporting under FATCA, which benefits the United States solely, and he refers to a former US Department of the Treasury official on tax policy, Emily McMahon, commenting on such problems and offering the view that FATCA is a vehicle to transitioning to a multilateral system (ibid at 336–37). See also Chapters 4 and 5 for a discussion of the existing frameworks for international EOI between sovereigns and related current developments from the Canadian and US legal perspectives respectively.
- 9.
See Regulations relating to Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities, 77 Fed Reg 9022 (15 February 2012). The preamble to the proposed regulations reviews the US reporting rules applicable in principle to require US (emphasis added) third-party payors to document their third-party payees and report certain types of payments made to those payees (e.g., Chapter 61 of Subtitle A of the Code, above note 3, comprising in relevant part §§ 6041–49, which require certain payors to document their third-party payees and report certain types of payments, such as interest, dividends, and gross proceeds from broker transactions). The preamble also reviews rules in Chapter 3 of Subtitle A of the Code, comprising §§ 1441–64, which generally require withholding agents to document their payees and to withhold and report with respect to certain US sourced payments to foreign persons. Essentially, the policy effect under FATCA is to impose similar reporting obligations on FFIs and certain non-financial foreign entities. This is both monumental and historic.
- 10.
See Smiley, above note 2 at 26; David Jolly & Brian Knowlton, “Law to Find Tax Evaders Denounced” New York Times (26 December 2011) B1, online: http://nyti.ms/1I7SMjg, reporting that businesses outside the United States will have to spend billions of dollars annually to comply with FATCA.
- 11.
See Jolly & Knowlton, above note 10; Bruce Zagaris, “Bilateral Agreement Alternative to FATCA Implementation Brings New Twist to International Tax Cooperation” (2012) 28 International Enforcement Law Reporter 113. See also Intergovernmental Joint Statement, above note 5; Grinberg, above note 6 at 375, remarking that FATCA’s requirement for reporting directly from an FFI to a foreign sovereign will violate local financial privacy and data protection laws in many jurisdictions.
- 12.
See Intergovernmental Joint Statement, above note 5.
- 13.
See ibid. The parties to the Intergovernmental Joint Statement, ibid, agreed to a framework that embraced bilateral agreements whereby each foreign partner country would agree to pursue necessary implementing legislation to require FFIs in its jurisdiction to collect and report to the authorities of the foreign partner the required information, to enable FFIs to apply necessary diligence to identify US accounts, and to transfer the information reported by the FFIs to the United States on an automatic basis. In exchange, FFIs in a foreign partner country could avoid having to enter into agreements directly with the IRS and could comply with their reporting obligations by reporting information directly to the foreign partner. FFIs in a foreign partner country would generally be regarded as participating FFIs or deemed-compliant FFIs and thereby escape withholding. They would not have to terminate the accounts of recalcitrant account holders or impose passthru payment withholding on payments to such account holders (ibid).
- 14.
See United States, Department of the Treasury, “Resource Center: Foreign Account Tax Compliance Act (FATCA)” (19 April 2016), online: www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA.aspx.
- 15.
See Allison Christians & Arthur J Cockfield, “Submission to Finance Department on Implementation of FATCA in Canada: Submission on Legislative Proposals relating to the Canada–United States Enhanced Tax Information Exchange Agreement” (10 March 2014), online: http://dx.doi.org/10.2139/ssrn.2407264; Allison Christians, “Country Report: Canada” in Eleonor Kristoffersson et al, eds, Tax Secrecy and Tax Transparency: The Relevance of Confidentiality in Tax Law, Part 1 (Frankfurt am Main: PL Academic Research, 2013) 209; Arthur J Cockfield, “Protecting Taxpayer Privacy Rights under Enhanced Cross-border Tax Information Exchange: Toward a Multilateral Taxpayer Bill of Rights” (2010) 42 University of British Columbia Law Review 420; Arthur J Cockfield, “FATCA and the Erosion of Canadian Taxpayer Privacy: Report to the Office of the Privacy Commissioner of Canada” (1 April 2014), online: http://ssrn.com/abstract=2433198 [Cockfield, “FATCA and Erosion”].
- 16.
See Cockfield, “FATCA and Erosion,” above note 15. See also Agreement between the Government of Canada and the Government of the United States of America to Improve International Tax Compliance through Enhanced Exchange of Information under the Convention between Canada and the United States of America with respect to Taxes on Income and on Capital, (5 February 2014), online: www.fin.gc.ca/treaties-conventions/pdf/FATCA-eng.pdf [Canada–US IGA].
- 17.
2015 FC 1082 at paras 33–34 [Hillis and Deegan].
- 18.
Canada–United States Enhanced Tax Information Exchange Agreement Implementation Act, SC 2014, c 20; Economic Action Plan 2014 Act, No 1, SC 2014, c 20 [latter two acts together: Implementation Act]; Hillis and Deegan, above note 17 at paras 1 and 3.
- 19.
Hillis and Deegan, above note 17 at para 65.
- 20.
Ibid at para 76.
- 21.
Income Tax Act, RSC 1985, c 1 (5th Supp) [Act].
- 22.
Christians & Cockfield, above note 15 at 1–2.
- 23.
See David S Kerzner, “Surviving FATCA: A Roadmap for Delinquent U.S. Filers and Their Advisors” (2014) 7 Taxes & Wealth Management 1, arguing that the US taxation of Canadians who have had no contact with the United States during their lifetime but received citizenship at birth or who have lived in Canada for many decades is inconsistent with concepts of equity in tax policy and that the benefits principle does not apply to these individuals, and advocating a reorientation of US tax policy with respect to this unique class of individuals within the US tax system. See also Canada–US IGA, above note 16.
- 24.
See Chapter 3, Sections 7.4 and 7.5.
- 25.
Michael A Livingston, “Reinventing Tax Scholarship: Lawyers, Economists, and the Role of the Legal Academy” (1998) 83 Cornell Law Review 365 at 368. Livingston offers that the goal of tax scholarship should be to move beyond the normative focus of determining the “right” answer to tax problems under idealized and apolitical conditions — to encompass approaches (such as empirical studies, narrative projects, and an expanded normativity) that recognize that in the partisan nature of taxation, tax policy is one aspect of a broader set of political and social issues.
- 26.
Diane M Ring, “The Promise of International Tax Scholarship and Its Implications for Research Design, Theory and Methodology” (2010) 55 Saint Louis University Law Journal 307 at 327–28. In commenting on Livingston’s conception of “empirical” work, Ring, ibid at 312, notes that Livingston favours the goal of gathering and analyzing relevant information in useful ways for those designing policy and that he believes a rigid adherence to highly sophisticated methodologies from the social sciences is not essential.
- 27.
For most of the years from 2005 to 2014, making an appointment to expatriate at the Consulate General of the United States in Toronto required a couple of weeks’ advance notice. As of January 2016, scheduling an appointment to expatriate requires ten months’ advance notice.
- 28.
See Chapter 10, Section 5, discussing US voluntary disclosure programs from 2009 to 2015.
- 29.
See Michael J Graetz, “Taxing International Income: Inadequate Principles, Outdated Concepts, and Unsatisfactory Policies” (2001) 54 Tax Law Review 261 at 276–325. Professor Graetz advocates that to best articulate an international tax policy, the political as well as the economic considerations and needs of the American people should be addressed.
- 30.
See Canada, Department of Finance, “Explanatory Notes — Canada–United States Enhanced Tax Information Exchange Agreement” (Ottawa: Department of Finance, 2014) at clause 1, online: http://www.fin.gc.ca/drleg-apl/2014/can-us-eu-0214n-eng.pdf.
- 31.
See Rita Trichur, “Canada Banks Tally Their Tax-Compliance Tab” Wall Street Journal (27 July 2014), online: http://on.wsj.com/1teJ5K6.
- 32.
See Kyle Caldwell, “British Families Billed £500 — To Prevent Americans Dodging Tax” Telegraph (23 August 2014), online: www.telegraph.co.uk/finance/personalfinance/tax/11050777/British-families-billed-500-to-prevent-Americans-dodging-tax.html.
- 33.
See, for example, § 7206(1) of the Code, above note 3, which deals with falsifying a tax return.
- 34.
The Final FATCA Regulations, above note 3, are over 500 pages long. See also, for example, additional FATCA guidance issued by the Department of the Treasury for financial institutions: Notice 2015-10 “Guidance on Refunds and Credits under Chapter 3, Chapter 4, and related Withholding Provisions”; Notice 2015-66 “Extensions of FATCA Transitional Rules for Gross Proceeds, Foreign Passthru Payments, Limited Branches and Limited FFIs, and Sponsored Entities; Modification to Grandfathered Obligation Rule with respect to Collateral; and Reporting of 2014 Information under a Model 1 IGA”; Notice 2014-59 “Modified Applicability Dates of Certain Provisions under Chapters 3 and 61”; Revenue Procedure 2014-47 “Application Procedures and Overview of Requirements for Withholding Foreign Partnership or Withholding Foreign Trust Status under Chapters 3 and 4; Final Withholding Foreign Partnership Agreement; Final Withholding Foreign Trust Agreement”; Revenue Procedure 2014-39 “Application Procedures and Overview of Requirements for Qualified Intermediary Status under Chapters 3, 4, and 61 and Section 3406; Final Qualified Intermediary Agreement”; Revenue Procedure 2014-38 “FFI Agreement for Participating FFI and Reporting Model 2 FFI”; Notice 2014-33 “Further Guidance on the Implementation of FATCA and Related Withholding Provisions”; Announcement 2014-17 “Update on Jurisdictions Treated as Having an IGA in Effect on FATCA Financial Institution Registration”; TD 9658 “Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons, Information Reporting and Backup Withholding on Payments Made to Certain U.S. Persons, and Portfolio Interest Treatment”; TD 9657 “Regulations relating to Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities”; REG-130967-13 “Regulations relating to Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities”; REG-134361-12 “Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons and Revision of Information Reporting and Backup Withholding Regulations”; Announcement 2014-1 “Update on FATCA Financial Institution Registration”; Notice 2013-69 “FFI Agreement for Participating FFI and Reporting Model 2 FFI”; Notice 2013-43 “Revised Timeline and Other Guidance regarding the Implementation of FATCA.” The aforementioned regulations and other guidance documents are available at United States, Internal Revenue Service, “FATCA — Regulations and Other Guidance,” online: www.irs.gov/Businesses/Corporations/FATCA-Regulations-and-Other-Guidance.
- 35.
Above note 3, reg § 1.1471-1.
- 36.
Ibid, reg § 1.1471-2.
- 37.
Ibid, reg § 1.1471-3.
- 38.
Ibid, reg § 1.1471-4.
- 39.
Ibid, reg § 1.1471-5.
- 40.
Ibid, reg § 1.1471-6.
- 41.
Ibid, reg § 1.1472-1.
- 42.
Ibid, reg § 1.1473-1.
- 43.
Ibid, reg § 1.1474-1.
- 44.
Ibid, reg §§ 1.1474-2–1.1474-5.
- 45.
Ibid, reg § 1.1474-6.
- 46.
Ibid, reg § 301.1474-1.
- 47.
Ibid, reg § 1.1474-7.
- 48.
Ibid, §§ 1471–74 and the regulations thereunder.
- 49.
Ibid, §§ 1471(a), 1471(b), 1472(a), & 1472(b).
- 50.
See Final FATCA Regulations, above note 3, Background.
- 51.
See ibid.
- 52.
Code, above note 3, § 1473(1).
- 53.
Ibid.
- 54.
See David S Kerzner, Vitaly Timokhov, & David W Chodikoff, eds, The Tax Advisor’s Guide to the Canada–U.S. Tax Treaty (Toronto: Thomson Reuters Carswell, 2008) (loose-leaf) ch 13. See also United States, Department of the Treasury, United States Model Income Tax Convention (15 November 2006) (Washington, DC: US Department of the Treasury, 2006), online: www.treasury.gov/press-center/press-releases/Documents/hp16801.pdf.
- 55.
Code, above note 3, § 1471(d)(5).
- 56.
Ibid.
- 57.
Ibid, § 1471(b). As an alternative to reporting account balances or values, and gross receipts and gross withdrawals or payments, a participating FFI may elect to report the information required under Code, ibid, §§ 6041, 6042, 6045, and 6049 as if it were a US person (ibid, § 1471(c)(2)).
- 58.
Ibid, § 1471(b)(1)(A) & (B).
- 59.
Ibid, § 1471(b)(1)(C) and (E): certain exceptions and modifications may be made to these rules from time to time by the Secretary of the Treasury.
- 60.
Ibid.
- 61.
Ibid, § 1471(d)(1).
- 62.
Ibid, § 1471(d)(2).
- 63.
Ibid, § 1473(3). The Code, ibid, generally excludes from the definition of US person corporate stock that is publicly traded; stock of a corporation affiliated with a publicly traded company; organizations that are exempt under § 501(a) or an individual retirement plan; the United States, any state, or district, or any agency, or instrumentality of the foregoing; banks defined in § 581; real estate investment trusts defined in § 856; regulated investment companies defined in § 851; common trust funds defined in § 584(a); and trusts that are exempt under § 664(c) or § 4947(a)(1).
- 64.
Ibid, § 1471(d)(3). Under the Code, ibid, § 1473(2), a substantial US owner means with respect to any corporation, any specified US person that owns, directly or indirectly, more than 10 percent of the stock of such a corporation (by vote and value); with respect to any partnership, any specified US person that owns, directly or indirectly, more than 10 percent of the profits interests or capital interests in such partnership; and in the case of a trust, any specified US person treated as an owner of any portion of such trust under Subpart E of Part I of Subchapter J of Chapter 1 and to the extent further provided by the Secretary of the Treasury any specified US person that holds, directly or indirectly, more than 10 percent of the beneficial interests of such trust.
- 65.
See Final FATCA regulations, above note 3, Background.
- 66.
See United States, Internal Revenue Service, “Summary of FATCA Timelines” (last updated 3 December 2015), online: www.irs.gov/Businesses/Corporations/Summary-of-FATCA-Timelines [“FATCA Timelines”]. See also United States, Department of the Treasury, Agreement between the Government of the United States of America and the Government of [FATCA Partner] to Improve International Tax Compliance and to Implement FATCA (Washington, DC: Department of the Treasury, 2012) [Model 1 IGA].
- 67.
“FATCA Timelines,” above note 66.
- 68.
Model 1 IGA, above note 66. Later still, the US Department of the Treasury introduced the following model IGA: Model 1A IGA Reciprocal, Preexisting TIEA or DTC: Agreement between the Government of the United States of America and the Government of [FATCA Partner] to Improve International Tax Compliance and to Implement FATCA (4 November 2013), online: www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Reciprocal-Model-1A-Agreement-Preexisting-TIEA-or-DTC-11-4-13.pdf (for FFIs reporting to their fiscal authority). See also the Model 1A IGA issued on 30 November 2014: Model 1A IGA Reciprocal, Preexisting TIEA or DTC: Agreement between the Government of the United States of America and the Government of [FATCA Partner] to Improve International Tax Compliance and to Implement FATCA (30 November 2014), online: www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Reciprocal-Model-1A-Agreement-Preexisting-TIEA-or-DTC-11-30-14.pdf [Model 1A IGA]. The Department of the Treasury also developed alternative model IGAs for indirect reporting — Model 1B IGA Non-reciprocal, Preexisting TIEA or DTC; Model 1B IGA Non-reciprocal, No TIEA or DTC — and for direct reporting to the IRS — Model 2 IGA, Preexisting TIEA or DTC; Model 2 IGA, No TIEA or DTC: see United States, Department of the Treasury, “Model Intergovernmental Agreements” (last updated 19 January 2016), online: www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA.aspx.
- 69.
Model 1A IGA, above note 68, Preamble.
- 70.
See United States, Department of the Treasury, Press Release, “Treasury and IRS Issue Final Regulations to Combat Offshore Tax Evasion” (17 January 2013), online: www.treasury.gov/press-center/press-releases/Pages/tg1825.aspx.
- 71.
See ibid; United States, Department of the Treasury, Model 2 IGA, Preexisting TIEA or DTC: Agreement between the Government of the United States of America and the Government of [FATCA Partner] for Cooperation to Facilitate the Implementation of FATCA (4 November 2013), online: www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Model-2-Agreement-Preexisting-TIEA-or-DTC-11-4-13.pdf [Model 2 IGA] (for FFIs reporting directly to the IRS).
- 72.
Allison Christians, “Interpretation or Override? Introducing the Hybrid Tax Agreement” (2015) 80 Tax Notes International 51 at 51.
- 73.
Ibid at 52–53, observing, for example, that were a FATCA partner to invoke the public policy exception to exchanging information under Art 26(3) of the Model Tax Convention on Income and on Capital (Paris: OECD, 1992) (loose-leaf) [Model Tax Treaty], such a jurisdiction could find itself subject to the 30 percent withholding penalty under FATCA while the United States may be able to invoke the same public policy exception without facing such a sanction.
- 74.
Model Tax Treaty, above note 73.
- 75.
Model 1A IGA, above note 68 at Arts 1(g), (h), (i), (j), & (k).
- 76.
Ibid at Art 1(l).
- 77.
Ibid at Art 1(n).
- 78.
Ibid at Art 1(o).
- 79.
Ibid at Art 1(aa).
- 80.
Ibid at Art 1(bb).
- 81.
Ibid at Art 1(s).
- 82.
Ibid at Art 1(cc).
- 83.
Ibid at Art 1(dd).
- 84.
Ibid at Art 1(ee).
- 85.
Ibid at Art 1(ff). See note 63, above in this chapter.
- 86.
Model 1A IGA, above note 68 at Art 1(gg).
- 87.
Ibid at Art 1(ii).
- 88.
Ibid at Art 2(a)(1).
- 89.
Ibid at Art 2(a)(2).
- 90.
Ibid at Art 2(a)(3).
- 91.
Ibid at Art 2(a)(4).
- 92.
Ibid at Art 2(a)(5).
- 93.
Ibid at Art 2(a)(6).
- 94.
Ibid at Art 2(a)(7).
- 95.
Ibid at Art 2(b)(1).
- 96.
Ibid at Art 2(b)(2).
- 97.
Ibid at Art 2(b)(3).
- 98.
Ibid at Art 2(b)(4).
- 99.
Ibid at Art 2(b)(5).
- 100.
Ibid at Art 2(b)(6).
- 101.
Ibid at Art 3(1).
- 102.
Ibid at Art 3(3)(a)(1).
- 103.
Ibid at Art 3(5).
- 104.
Ibid at Art 3(6).
- 105.
Ibid at Art 4(1).
- 106.
Ibid at Arts 4(1)(a)–(e), for obligations of [FATCA Partner] Financial Institutions.
- 107.
Ibid at Arts 4(2) & (3).
- 108.
Ibid at Arts 4(4) & (5).
- 109.
Ibid at Art 5(2)(a).
- 110.
Ibid.
- 111.
Ibid at Art 5(2)(b). Query whether there will be any access to the arbitration provisions under the competent authority procedures if such exist, as they do, for example, in the case of the Convention between Canada and the United States of America with respect to Taxes on Income and on Capital, 26 September 1980 (as amended to the protocols signed on 14 June 1983, 23 March 1984, 17 March 1997, 29 July 1997, and 21 September 2007) [Canada–US Tax Treaty].
- 112.
Model 1A IGA, above note 68 at Art 6(3).
- 113.
Ibid, Annex I. Annex II deals with Non-reporting [FATCA Partner] Financial Institutions and products.
- 114.
See Canada–US IGA, above note 16.
- 115.
Implementation Act, above note 18, enacting Part XVIII, ss 263–269, of the Act, above note 21. See also Julius Melnitzer, “Canadian Institutions Scramble in Race to Comply with FATCA” Financial Post (2 July 2014), online: http://natpo.st/1NIKXFG.
- 116.
Canada, Canada Revenue Agency, Guidance on Enhanced Financial Accounts Information Reporting: Part XVIII of the Income Tax Act (Ottawa: Canada Revenue Agency, 2015), online: www.cra-arc.gc.ca/tx/nnrsdnts/nhncdrprtng/gdnc-eng.pdf [Guidance on Information Reporting]. See also Act, above note 21, Part XVIII.
- 117.
Canada–US Tax Treaty, above note 111. Although the Canada–US IGA, above note 16, is formally reciprocal, as the United States is not considered a tax haven jurisdiction for Canadian residents and as Canada has been receiving Automatic Exchange relating to interest income earned by Canadian residents for decades, the true purpose of the agreement is to drive names of non-compliant US citizens living in Canada to the IRS for enforcement action, and not to combat tax evasion by Canadians with US bank and financial accounts: see Kerzner, above note 23.
- 118.
Christians & Cockfield, above note 15.
- 119.
Canada–US Tax Treaty, above note 111 at Art XXVII. The preamble to the Canada–US IGA, above note 16, provides in part, “Whereas, the Parties desire to conclude an agreement to improve international tax compliance and provide for the implementation of FATCA based on domestic reporting and reciprocal automatic exchange pursuant to the Convention . . . .” See also Canada–US IGA, ibid at Art 2(1): “Subject to the provisions of Article 3 of this Agreement, each Party shall obtain the information specified in paragraph 2 of this Article with respect to all Reportable Accounts and shall annually exchange this information with the other Party on an automatic basis pursuant to the provisions of Article XXVII of the Convention.” The fact that Article XXVII remains intact is vital to understanding that while certain accounts maintained in Canada, for example, RRSPs, may not be subject to the reporting regime under FATCA or the Canada–US IGA, this does not mean that once the IRS has the name of a delinquent filer, it cannot request bank information on all of that person’s accounts in Canada under a wide array of administrative and treaty avenues. This critical factor is often overlooked by journalists and other observers writing on FATCA implementation in Canada: see Kerzner, above note 23.
- 120.
See notes 72–73 and associated text, above in this chapter.
- 121.
See Canada–US IGA, above note 16, Preamble.
- 122.
See ibid. See also Arthur J Cockfield, “The Limits of the International Tax Regime as a Commitment Projector” (2013) 33 Virginia Tax Review 59 at 98, observing that FATCA unduly raises transaction costs for taxpayers and non-US financial institutions, which will result in a long-term reputation cost affecting the ability of the United States to make credible commitments concerning cross-border tax matters, which will harm US economic interests, and also noting that the implementation of the regime has the unintended consequence of redistributing wealth from taxpayers impacted by the higher transaction costs to financial service and tax service providers.
- 123.
See Guidance on Information Reporting, above note 116 at 7.
- 124.
See ibid at 12.
- 125.
See, for example, Canada–US IGA, above note 16, Annex I at VI.
- 126.
Ibid at Arts 1(g), (h), (i), (j), & (k). See also Matias Milet, “FATCA and Canadian Investment Entities” (2015) Journal of International Taxation 29 (Checkpoint).
- 127.
Act, above note 21, s 263(1).
- 128.
See Guidance on Information Reporting, above note 116 at 16; Act, above note 21, s 263(2).
- 129.
See Guidance on Information Reporting, above note 116 at 16; Act, above note 21, s 263(1).
- 130.
For an in-depth discussion of the issue, see Roy A Berg & Paul M Barba, “FATCA in Canada: The Restriction on the Class of Entities Subject to FATCA” (2014) 62:3 Canadian Tax Journal 587. See also Alison Bennett, “Treasury OK with Canadian Stance on Listed Financial Institutions under FATCA” BNA Daily Tax Reporter (7 October 2014).
- 131.
Canada–US IGA, above note 16 at Art 1(l); Act, above note 21, s 263(2).
- 132.
Canada–US IGA, above note 16 at Art 1(n).
- 133.
Ibid at Art 1(o); Act, above note 21, s 263(2).
- 134.
Canada–US IGA, above note 16 at Art 1(q); Act, above note 21, ss 263(1) & (2).
- 135.
Canada–US IGA, above note 16 at Art 1(r).
- 136.
Ibid at Arts 1(s), (t), (u), & (v); Act, above note 21, ss 263(1), (2), & (3).
- 137.
Canada–US IGA, above note 16 at Art 1(aa).
- 138.
Ibid at Art 1(cc); Act, above note 21, s 263(1).
- 139.
Canada–US IGA, above note 16 at Art 1(dd).
- 140.
Ibid at Art 1(ee).
- 141.
Ibid at Art 1(ff). See note 63, above in this chapter. Under Art 6(4)(b) of the Canada–US IGA, above note 16, with respect to Reportable Accounts maintained by a Reporting Financial Institution as of 30 June 2014, Canada commits to establish by 1 January 2017, for reporting with respect to 2017 and subsequent years rules requiring Reporting Canadian Financial Institutions to obtain the US TIN of each Specified US Person.
- 142.
Canada–US IGA, above note 16 at Art 2(a)(1).
- 143.
Ibid at Art 2(a)(2).
- 144.
Ibid at Art 2(a)(3).
- 145.
Ibid at Art 2(a)(4).
- 146.
Ibid at Art 2(a)(5).
- 147.
Ibid at Art 2(a)(6).
- 148.
Ibid at Art 2(a)(7).
- 149.
Ibid at Art 2(b)(1).
- 150.
Ibid at Art 2(b)(2).
- 151.
Ibid at Art 2(b)(3).
- 152.
Ibid at Art 2(b)(4).
- 153.
Ibid at Art 2(b)(5).
- 154.
Ibid at Art 2(b)(6).
- 155.
Ibid at Art 6(4). But see ibid at Art 3(4), which may under certain circumstances require a Party to obtain and exchange the date of birth of a relevant person if such information is on hand.
- 156.
Ibid at Art 3(1).
- 157.
Ibid at Art 3(3)(a)(1).
- 158.
Ibid at Art 3(3)(a)(2).
- 159.
<Footnote ID="Fn158"><Para ID="Par272">Ibid at Art 3(3)(a)(3). Information to be exchanged by the United States in 2014 and subsequent years is all of the data required under Art 2(2)(b) (Ibid at Art 3(3)(b)).
- 160.
Ibid at Art 3(3)(b).
- 161.
Ibid at Art 3(5).
- 162.
Ibid at Art 3(6).
- 163.
Ibid at Art 4(1).
- 164.
Ibid at Arts 4(1)(a)–(e), for obligations of Reporting Canadian Financial Institutions.
- 165.
Ibid at Arts 4(2) & (3).
- 166.
Ibid at Arts 4(4) & (5).
- 167.
Ibid at Arts 4(6) & (7).
- 168.
Ibid at Art 5(2)(a).
- 169.
Ibid.
- 170.
Ibid at Art 5(2)(b). Query whether there will be any access to the arbitration provisions under the competent authority procedures in the Canada–US Tax Treaty, above note 111.
- 171.
Canada–US IGA, above note 16 at Art 5(1).
- 172.
Ibid at Art 6(3).
- 173.
Ibid at Arts 6(1) & (2).
- 174.
Ibid at Art 7(1).
- 175.
Ibid, Annex I. See Act, above note 21, s 265.
- 176.
Canada–US IGA, above note 16, Annex II at II. See Code, above note 3, §§ 1471 & 1472.
- 177.
Canada–US IGA, above note 16, Annex II at III. See Code, above note 3, § 1471.
- 178.
Canada–US IGA, above note 16, Annex II at IV.
Further Readings
Christians, Allison, & Arthur J Cockfield. “Submission to Finance Department on Implementation of FATCA in Canada: Submission on Legislative Proposals relating to the Canada–United States Enhanced Tax Information Exchange Agreement” (10 March 2014), online: http://dx.doi.org/10.2139/ssrn.2407264.
Cockfield, Arthur J. “The Limits of the International Tax Regime as a Commitment Projector” (2013) 33 Virginia Tax Review 59.
Grinberg, Itai. “The Battle over Taxing Offshore Accounts” (2012) 60 UCLA Law Review 304.
Kerzner, David S. “Surviving FATCA: A Roadmap for Delinquent U.S. Filers and Their Advisors” (2014) 7 Taxes & Wealth Management 1.
Milet, Matias. “FATCA and Canadian Investment Entities” (2015) Journal of International Taxation 29 (Checkpoint).
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Kerzner, D.S., Chodikoff, D.W. (2016). Foreign Account Tax Compliance Act. In: International Tax Evasion in the Global Information Age. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-40421-9_9
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