Enforce Canadian law, not FATCA
The Canadian government is bending over backwards, and bending our laws, to allow the U.S. to enforce its new tax compliance act.
Canadian visitors to Washington sometimes wonder why their embassy stands at the foot of Capitol Hill.
The answer? To be close to where Canada’s laws are made.
Case in point: on Feb. 5 Jim Flaherty’s Finance Ministry announced a so-called “intergovernmental agreement” to enforce FATCA, the U.S. Foreign Account Tax Compliance Act, in Canada.
Supposedly aimed at American tax cheats, FATCA was enacted in 2010 and is set to go into effect on July 1, 2014. But instead of singling out suspected tax evaders, FATCA creates an NSA-style information dragnet requiring every non-U.S. financial institution in the world (including banks, credit unions, and insurance companies) to report data on all specified U.S. accounts to the Internal Revenue Service (IRS).
How can foreign (including Canadian) institutions outside U.S. jurisdiction be forced to comply? Simple: economic sanctions. A Canadian bank deemed “recalcitrant” would be subjected to 30-per-cent “withholding” from all U.S.-sourced payments. Given America’s weight in global finance, the risk of such extrajudicial reprisal has terrified banks and governments worldwide.
Still, even FATCA’s advocates concede that direct enforcement is “wholly unachievable” due to privacy protection laws in many countries that don’t allow personal data to be sent to unauthorized recipients. Thus, the Feb. 5 agreement not only permits Canadian institutions to comply with FATCA despite privacy laws, but will require them to collect the information demanded and report it to the Canada Revenue Agency for transfer to the IRS.
The Harper government’s defence of turning the CRA and Canadian banks into agents of the U.S. government runs as follows:
The government and Canadian banks tried lobbying the Americans against FATCA, but that didn’t work. Threatened with 30-per-cent withholding sanctions, we negotiated the best deal obtainable to protect personal privacy, minimize costs and receive reciprocal reporting from the U.S.
The problem is, no part of this excuse is true:
- Lobbying: By their own admission, the government’s and the Canadian Bankers Association’s “lobbying” consisted of a few meetings with U.S. officials and submitting a couple of commentaries to American newspapers, which rejected them. Nothing was undertaken remotely comparable to Ottawa’s saturation “GoWithCanada.ca” campaign touting the importance of Canadian energy.
- Negotiating the best deal: The Canadian agreement replicates a uniform template finalized in all essentials in July 2012. Ottawa “negotiated” nothing but some minor exemptions that can be revoked by the U.S. at will. Even small concessions were vetoed, such as Canadian credit unions’ request to exempt institutions with assets under $1 billion, not the $175-million cut-off the U.S. Treasury Department deigns to allow for other countries.
- Privacy: The primary purpose of the agreement is to nullify protections under the Bank Act, the Personal Information Protection and Electronics Documents Act (PIPEDA), the Canadian Human Rights Code, and especially the Charter of Rights and Freedoms. The people affected are not just resident Americans but at least a million Canadian citizens. Claims that Canadians’ personal data would not be forwarded to the NSA and other intelligence agencies are laughable.
- Costs: “Experts” reportedly estimate that FATCA could cost Canada $200 million. But the Bank of Nova Scotia already has spent $100 million; the Big Five banks alone will spend at least $500 million. Canadian consumers will pour billions of dollars into the pockets of consulting, law, accounting and software firms.
- Reciprocity: Ottawa already receives information on Canadian residents’ interest from U.S. banks. Information equivalent to what Canada must report to the U.S. would require new legislation from Congress — which powerful members of the Republican-controlled House of Representatives already have ruled out.
Canada’s capitulation to this expensive, invasive and anti-sovereign demand is unnecessary. Canada has many tools to resist FATCA, from World Trade Organization and legal challenges to reciprocal, dollar-for-dollar withholding of payments to U.S. institutions. A “no” from Canada could itself doom FATCA in light of growing U.S. domestic opposition. A FATCA repeal bill has been introduced by Senator Rand Paul, a leading 2016 presidential prospect. The Republican Party, which recently approved a resolution advocating FATCA repeal, will continue to control the House and likely will capture the Senate this year.
To their credit, New Democrats Tom Mulcair and Murray Rankin, Liberals Ted Hsu and Scott Brison, and Green Party leader Elizabeth May have challenged the Harper government on FATCA. Conservatives have done all Canadians a disservice by finalizing the agreement in secret. The least they can do now is to give it a full airing in Parliament, followed by lifting party discipline to allow Conservative MPs to help vote it down.
James George Jatras is a former U.S. diplomat and U.S. Senate staffer. Now a Washington-based government and media relations specialist, he edits RepealFATCA.com.
Credit: The Star