An essential, irreplaceable tool for the U.S. Treasury Department in trying to implement the otherwise unenforceable FATCA (the “Foreign Account Tax Compliance Act”) is to convince people of its inevitability: “Resistance is futile – you will be assimilated!”
This has been the consistent message directed at non-U.S. institutions and governments to convince them that, since FATCA will be imposed on them whether they like it or not, it’s best to sign an intergovernmental agreement (IGA) as what Treasury euphemistically calls a “FATCA partner” country and minimize the pain by imposing FATCA on themselves.
Consider the case of Canada, a country facing perhaps the most devastating costs, abrogation of civil liberties of its citizens, and loss of sovereign control of its institutions:
“[Canadian] Finance Minister Jim Flaherty has said Ottawa is ‘nearing a conclusion’ on the issue, suggesting a similar arrangement as reached by the U.K. is in the offing. . . . ‘An agreement with the U.S. to share information on a government to government basis, within prescribed limits, will bring certainty to the application of the FATCA regime to Canadians, and will also facilitate compliance by our financial institutions,’ he said in a statement. . . .
“[Canadian Bank Association President Terry] Campbell said [Canadian] financial institutions have no choice but to comply with U.S. law because the penalties can be onerous — a 30-per-cent tax on U.S.-source income. . . . ‘(But) short of having the U.S. authority change their law, and short of having the world financial system being radically restructured, neither of which is going to happen, authorities around the world have come to the conclusion they must deal with the United States to make this as administratively feasible as possible.’” [“Canadian banks wary of U.S. tax disclosure law: U.S. law FATCA forces dual citizens to file two returns whether or not they have paid in Canada,” The Canadian Press, 11/28/12]
How, as of November 28, can Ottawa already be “nearing a conclusion” on a U.S.-Canada agreement – said to be “in the offing” – when Minister Flaherty’s Finance Department only asked for Canadian public comments on an IGA on November 8? That, and the fact that Canada’s parliament barely has taken note of FATCA, much less debated it or authorized the government of Prime Minister Stephen Harper to impose U.S. laws on Canada’s financial sector – with Canadian taxpayers and consumers paying the costs! – hardly indicates judicious consideration of Canada’s options.
CBA President Campbell’s observation that “financial institutions have no choice but to comply with U.S. law because the penalties can be onerous” boils down to the following: we give up. The bitter fact is that Washington is threatening economic warfare – in effect, illegal trade sanctions –against Canada unless Ottawa agrees to enforce U.S. law against Canadian institutions and citizens. But that appears to be what the Harper government plans to do, as meekly and discreetly as possible.
So much for “O Canada, we stand on guard for thee” . . .
(Even more dubious is Mr. Campbell’s assertion that change of the U.S. law is not going to happen – when no one in the financial community has made any serious effort to try to change it. As noted by Nigel Green, CEO at the deVere Group: “The U.S government owes it to Americans to give public, in-depth justifications on why it remains committed to this highly controversial piece of legislation.” Right – if and when FATCA receives the kind of scrutiny in the United States it should have received before enactment, it is unlikely to survive. As Andrew F. Quinlan, co-founder and president of the Center for Freedom and Prosperity, accurately has observed: “[G]overnments are doing themselves and their financial industries a disservice by contemplating entering into FATCA agreements with the U.S. Backlash against the law is growing, and Treasury is in a race against time to lock it into place before a repeal effort can gain steam.”
In short, by planning preemptive surrender to the U.S. on FATCA, Canadian authorities are helping to inflict on Canada the very harm they seek to avoid. To state this without sugarcoating is not to attack Mr. Harper, Mr. Flaherty, or Mr. Campbell but to Appeal to them: before you take the ill-advised step of falling for Treasury’s bluff, give a fair hearing to what Canadian citizens are saying.
Forum: “U.S. Tax Grab in Canada” (Toronto, Dec. 15)
Meanwhile, Canadians are starting to wake up to the dangers posed by FATCA. In a December 4 letter to Minister Flaherty’s Department of Finance, Nathalie Des Rosiers, General Counsel for the Canadian Civil Liberties Association (CCLA), wrote regarding a proposed IGA with Washington:
“Privacy-invasive collection and disclosure of personal information should be done only when necessary. Under the Canadian government’s own assessment, that threshold has not been met in this case.
“The CCLA therefore urges the Canadian government to stand up for its citizens and residents and resist invasive, unnecessary, foreign-imposed violations of individual privacy.”
Dovetailing with the privacy concerns set out in the CCLA letter, the small but feisty Progressive Canadian Party will present a Fact-Finding Forum in Toronto on December 15 (full announcement follows this analysis, below). As stated by The Honourable Sinclair Stevens, Progressive Canadian Party Leader and former MP and Cabinet Minister, who will speak at the forum in Toronto:
“The American government is attempting to tax permanent residents of Canada whom they deem to be U.S. citizens. This contravenes Canada’s Charter of Rights and Freedoms and must be challenged.
“Financial institutions which refuse to cooperate in [FATCA’s] gathering of personal financial information are threatened with an enormous penalty – a 30% with-holding tax on all income on investments coming from the US to their clients. Can you spell ‘extortion’? This expands the impact of FATCA from just ‘US persons’ living here to all Canadians who have investments in the US and may well force Canadian banks to increase their banking charges for all their clients.”
The question is: will Canadian media and parties represented in parliament – both Mr. Harper’s ruling Conservatives and opposition New Democratic, Liberal, Bloc Québécois, and other MPs – stop ignoring this peril to Canadians’ freedoms and pocketbooks?
More resistance growing . . .
To be fair to those in Canada who may be pointing their country in the wrong direction: they are not alone. The UK and Denmark have signed IGAs with the U.S., and financial interests in other countries signal the same mistaken assumption that (to again quote CBA’s Mr. Campbell) they “have no choice but to comply with U.S. law because the penalties can be onerous.” For example, “The Jamaica Bankers Association (JBA) is again urging the Government to push for an agreement with the United States to ease the costs faced by local financial institutions if they are to conform with the Foreign Account Tax Compliance Act (FATCA).” [“JBA pushes for inter-governmental agreement on FATCA,” The Gleaner, 12/5/12]
But it seems that elsewhere the fact that IGAs are a bad deal for the designated “FATCA partner country” is beginning to catch on:
“[A] big obstacle remains barring implementation of Fatca: agreement and cooperation with foreign governments. . . .
“As of mid-November, governments of a just a few jurisdictions such as the UK, Denmark and Guernsey had indicated they would sign the IGA in its original format. But there were still no signs that, for example, the likes of France, Germany Switzerland or Japan were set to move beyond agreeing [to] a framework for discussions on IGAs to actually signing the relevant Agreements.
“Meanwhile the threatened implementation of Fatca continues to gather responses from across the financial industry, and from those clients who ultimately may be directly affected.…
“Efama [The European Fund and Asset Management Association] noted that, given the 1 January 2013 deadline, there was little time for industry practitioners to prepare for Fatca implementation, and no time at all if governments did not sign the agreement before the end of 2012. Failure of governments across Europe to agree a consistent approach to IGAs would also create problems, so Efama has argued for a standardised approach.
“Most controversially, perhaps, it argued for changes to domestic law if necessary to ensure the implementation of the IGA.
“Arguing for European governments to change their laws to suit the US is difficult. Germany, for example, is just one jurisdiction facing elections in the coming year, and it is not clear how any IGA signed today would play out in election debates.”
References to “changes in domestic law” are a demure reference to the problem raised in the CCLA letter to the Canadian Finance Department. Germany, France, and many other countries have privacy protection laws comparable to Canada’s Personal Information Protection and Electronic Documents Act . FATCA would demand that such laws be “changed” – in effect, scrapped – not only for American expats in those countries but, under FATCA’s expansive definition of accounts belong to “U.S. persons,” for many citizens of those countries.
This amounts to collusion of non-U.S. governments with industry to sacrifice the rights of their own citizens to avoid penalties unilaterally threatened by the United States. The U.S. Treasury Department in effect is telling these “partner” governments:
You object to enforcing FATCA because it conflicts with your domestic laws protecting your citizens’ civil rights. We understand your concerns. So we generously will allow you to change your law to accommodate our demands. Oh, and you will bear the costs to administer our law against your own citizens and institutions.
Time for “FATCA Partner” Countries to Wake Up – and Fight
It can’t be repeated too many times: the main argument against IGAs is that they are the Treasury Department’s only means to make FATCA viable. As even some of FATCA’s top proponents admit, there is simply no way the U.S. can unilaterally and directly enforce FATCA against every non-U.S. financial firm in the world. The only practical way to impose FATCA at all is for non-U.S. governments to enforce what is in effect U.S. law against their own domestic firms and their own citizens. They would do so at their own cost and for little or no revenue gain, given the asymmetry between U.S. and non-U.S. “partner” IGA obligations and non-U.S. residence-based taxation systems. Firms concluding that “they have no choice” and pushing their governments to sign IGAs with the U.S., and governments that do so, are acting as FATCA's enablers to their own detriment.
Instead, to quote the CCLA, it’s time for every self-respecting government to “stand up for its citizens and residents and resist invasive, unnecessary, foreign-imposed violations of individual privacy,” national sovereignty, and consumer welfare, and just say No to FATCA, whether with an IGA or without one. Instead, non-U.S. governments need to tell Treasury that they –
- Will not sign an IGA with the U.S. to enforce FATCA;
- Will not allow FATCA, a U.S. law, to be enforced in their countries by the United States on an extraterritorial basis;
- Will not permit their domestic financial institutions to comply with FATCA in violation of national laws, including privacy protections; and
- Will, if the U.S. attempts to enforce FATCA against domestic institutions – including application of the 30% withholding penalty – vigorously respond with all legal means, including WTO and (in the case of Canada) NAFTA remedies, counter-sanctions, and lawsuits in the American courts for violations trade and other international agreements binding on the United States.
Finally, the financial interests that stand to lose (or if FATCA is repealed, save) billions of dollars need to stop acting as FATCA-enablers and start helping the growing resistance – especially in the U.S., where the problem ultimately will have to be solved.
The above is on-the-record and may be posted or published with attribution; inquiries welcome.
Full contacts below, following the announcement of the Dec. 15 forum:
The Honourable Sinclair Stevens: 1 888 666 3821
December 5, 2012
The Progressive Canadian Party presents
A Fact Finding Forum on U.S. Tax Grab in Canada
“FATCA”: What is at Stake for Canada and Canadians?
Saturday, December 15, 2012 11:00 a.m. – 6:00 p.m. (doors will open at 10:00 a.m.) University of Toronto – Victoria College – Victoria College Building – Room VC115
In 2010, U.S. President Barack Obama signed into law the “Foreign Account Tax Compliance Act” (FATCA) with the stated purpose of detecting “U.S. persons” (which by U.S. Internal Revenue Service definitions would include many Canadian citizens residing in Canada) who may be hiding taxable income abroad. FATCA would place expensive data collection and reporting requirements on Canadian financial institutions: banks, stock and equity funds, pension funds, insurance companies, etc. – costs that would be passed on the Canadian consumer. A 30% withholding on U.S.-derived income would punish “recalcitrant” Canadian institutions for failing to provide the demanded information to the IRS.
In an effort to ease compliance costs for Canadian firms, the Government has indicated its interest in signing an intergovernmental agreement (IGA) with the U.S. under which the Canadian Government would enforce FATCA – a U.S. law – in Canada. An IGA also would override Canadian laws barring transfer of private information, such as Canada’s Personal Information Protection and Electronic Documents Act. On November 8, The Department of Finance has asked for comments from the Canadian public on a FATCA agreement with the U.S.
In an effort to help in developing responsible, well-analyzed submissions to the Finance Department, as well as to assist the Government, MPs, and the Canadian public in making informed choices, the Progressive Canadian Party invites you to a fact-finding forum on FATCA and consequences for Canada. Speakers include the following:
- The Honourable Sinclair Stevens, Progressive Canadian Party Leader, former MP and Cabinet Minister.
- Dorian Baxter, Progressive Canadian Party President.
- Professor Allison Christians, H. Heward Stikeman Chair in Tax Law, McGill University Faculty of Law.
- James George Jatras of www.repealfatca.com, Washington, DC; former U.S. Senate staffer and diplomat.
- Representative (name to be announced) of the Canadian Civil Liberties Association.
Among the questions to be addressed by speakers and in general discussion:
- What would be the costs of FATCA (with or without an IGA) for Canada and Canadians?
- Should the U.S. be allowed to make laws for Canadians? Is FATCA consistent with Canada’s sovereignty?
- Is FATCA consistent with Canadian privacy laws, the Canadian Charter of Rights and Freedoms, WTO, NAFTA, and principles of international law?
- Is the Government rushing into an IGA with the U.S.? Where are the Opposition and Canadian media?
- Would FATCA subject the retirement savings of Canadian citizens to confiscation by the IRS?
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