Canada recently announced that it would engage in negotiations regarding “expanded information exchange” with the United States to increase tax compliance. The United States is pursuing these agreements with multiple countries to facilitate the foreign information collection that will be mandated by the U.S. Foreign Account Tax Compliance Act (FATCA).
International information-sharing can result in significant privacy and rights violations, and the scope of information that the US government is seeking under FATCA is alarmingly broad. “Foreign financial institutions” is expansively defined in the U.S. Internal Revenue Code and according to a recent academic paper by Andrew Bonham includes “all chartered Canadian banks, stock-brokers, and virtually any entity engaged in the financial sector in Canada – ‘everyone from financial advisors to pension funds.’” This very broad category of institutions and individuals is required to report on most “US persons” holding accounts. This would encompass, with some exceptions, not only US citizens, but also many former green-card holders that have permanently left the United States or even individuals who have spent a substantial amount of time in the U.S. over a number of years. Finally, the information the U.S. government is seeking on all these individuals includes the person’s name, address, account number, account balance, gross receipts and payments from the account and their US taxpayer identifying number. The proposed financial penalties envisioned for individuals and financial institutions that do not comply with this regime are significant.
CCLA believes that Canadians’ privacy should not be invaded without an objectively compelling purpose. And as the Hon. Jim Flaherty, Minister of Finance has already publicly stated,
…put frankly, Canada is not a tax haven. People do not flock to Canada to avoid paying taxes. In addition, we have existing ways of addressing these issues with the United States through our Bilateral Tax Information Exchange Agreement. As I said, we share the same goal of fighting tax evasion and we already have a system that works.
To rigidly impose FATCA on our citizens and financial institutions would not accomplish anything except waste resources on all sides.
This should be the Canadian government’s starting and end point. Privacy-invasive collection and disclosure of personal information should only be done when necessary. Under the Canadian government’s own assessment, that threshold has not been met in this case.
To read CCLA’s full letter to the Department of Finance click here.