IRS trying to fuck Canada and the rest of the world

[Phantasee]

IRS wants Canada to nab U.S. tax cheats: Why we should care
DON WHITELEY

Published Monday, Jan. 07, 2013 07:17AM EST

Last updated Monday, Jan. 07, 2013 07:20AM EST


Now that the U.S. “fiscal cliff” has been pushed off the front pages for a couple of months, perhaps some attention can be given to a far more ominous cliff of U.S. origin the world actually went over on January 1. That was the day that FATCA – the Foreign Account Tax Compliance Act – officially came into force.

Passed in 2010 by the U.S. Congress, this act requires all foreign financial institutions – banks, credit unions, pension managers, insurance companies, etc. – to find out who among their clients might be U.S. citizens, or “U.S. Persons” (green card holders), and send details of their account balances and transactions to the U.S. Internal Revenue Service. FATCA’s goal is to catch U.S. tax cheats with offshore accounts.

Driving this tax jihad is the fact that the U.S. is one of only two countries in the world that levies income tax based on citizenship rather than residence. There are seven million U.S. expatriates around the world who are now caught up in this, and an estimated one million of those live in Canada. They include people who left the U.S. decades ago and are now citizens of other countries, people whose only connection to the U.S. is that one of their parents is an American, and people born in the U.S. but left as children. In the eyes of Uncle Sam they are all taxpayers.

FATCA represents the most egregious example of extra-territorial reach the U.S. has ever attempted. It will turn all the world’s banks into IRS auditors – at their own expense of course – and apply U.S. tax law on every country that allows it to happen. Its impact is so onerous that, while the Act is now legally in force, implementation has been delayed several times because the U.S. can’t produce a set of enforceable rules to make it work.

Why should we care? Because the Harper government is in the middle of negotiations with the U.S. to produce an intergovernmental agreement (IGA) that would impose U.S. tax law on Canada and turn Canadian banks into IRS auditors. Should this go forward, it would represent a colossal surrender of Canadian sovereignty and likely violates the Canadian Charter of Rights and Freedoms.

When initially approved in 2010, FATCA’s aim was to have every bank in the world enter an agreement with the IRS to show that it had taken steps to identify any Americans who might be account holders, and send their financial data to the IRS. The massive club wielded by the IRS to ensure compliance was quite simple – don’t do it and we’ll withhold 30 per cent from every U.S.-origin financial transaction that goes through your bank.

Canadian banks recognized immediately that such a system would violate all manner of federal and provincial financial privacy rules, and violate non-discrimination statutes in the Charter. They also recognized that the costs of complying with FATCA would be huge, and that the IRS “club” was so draconian that they could hardly thumb their nose at the United States. This is classic rock and hard place territory.

The solution – from the banks’ perspective – is to get Ottawa to sign an agreement with the U.S. that lets the banks report not to the IRS, but to the Canada Revenue Agency through existing forms and channels. This is seen as the lesser of two evils, and Ottawa appears to agree with them. Interestingly, this will significantly reduce the banks’ FATCA implementation costs by transferring the reporting responsibilities to CRA. In effect, Canadian taxpayers will be paying for the IRS audit costs.

It’s clear that the Harper government recognizes the sensitive nature of signing such a tax agreement with the U.S., because the plan is not to bring the details of such an agreement before Parliament, but instead simply seek Parliamentary approval (in another omnibus bill?) of an authorization to conclude a deal. The public will never see what Ottawa is giving the Americans until after it has been signed.

Where this might fall apart (and save both Canadian sovereignty and Canadian dignity) is through the application of the Charter. While an IGA helps the banks lower their costs, they still have to ask all their account holders if they are “U.S. Persons,” and that very question violates Charter provisions that prohibit discrimination on national origin or ethnicity. To put this in context, ask yourself what would happen if a bank, or any organization, sent out a questionnaire to account holders asking them if they are Muslims or Jews?

Peter Hogg, one of Canada’s leading Constitutional experts, sent a letter to the Finance Department last November, outlining a number of Charter concerns with any tax agreement signed with the U.S. – but he declined to make the letter public because he was attempting to arrange a meeting to discuss the issues.

If a tax IGA with the U.S. violates Canadian Charter rights, the question for Ottawa is, how would they get around it? Ottawa has never invoked the notwithstanding clause, and it’s hard to believe that even a Conservative government would do so for an agreement that has absolutely no benefit for Canada.

This issue – of huge significance to any Canadian who is a taxpayer or has a bank account (they will be paying for all this) has so far flown well below the radar. The U.S.-Canada talks on an agreement are shrouded in secrecy, neither opposition party has said a word about it, and the media pays very sporadic attention to it. That all has to change before the government signs away the country’s sovereignty.

Don Whiteley is a writer based in Vancouver

[Simon_Jester]

I'd be more interested to see how traditional 'bank shelter' countries decide to play it.

So, is this a story about the violation of Canadian sovereignty by the big imperialist monster to the south, a story about the US government trying to rein in tax shelters by finally getting some useful audit info on Americans with accounts overseas, or both?

[Phantasee]

Violation of Canadian sovereignty by the big imperialist monster to the south. The Globe and Mail is a national Canadian newspaper.

PS Your tax laws are fucking retarded and you should fix them and your definition of taxpayer before forcing us to bend over for you.

I want to see Canada say "fuck you, make me" and see if the US flinches. 30% tax on all cross border transactions will kill commerce pretty quickly, and I would think the outcry from US businesses would be sufficient to stop this sort of fuckery.

[The Duchess of Zeon]

The rational thing to do would be to ban anyone with American citizenship from holding an account in Canada; make it a felony in Canada for any American to hold an account there, require proof that people born in America or with an American parent have renounced US citizenship before giving them accounts, and then tell the US that the law no longer applies to Canadian banks so they will not comply with it.

[Ralin]

The rational thing to do would be to ban anyone with American citizenship from holding an account in Canada; make it a felony in Canada for any American to hold an account there, require proof that people born in America or with an American parent have renounced US citizenship before giving them accounts, and then tell the US that the law no longer applies to Canadian banks so they will not comply with it.

I like Phantasee's idea better, what with it not punishing ordinary people, some of them Canadian citizens, for something the US government does beyond their control.

[Fingolfin_Noldor]

Violation of Canadian sovereignty by the big imperialist monster to the south. The Globe and Mail is a national Canadian newspaper.

PS Your tax laws are fucking retarded and you should fix them and your definition of taxpayer before forcing us to bend over for you.

I want to see Canada say "fuck you, make me" and see if the US flinches. 30% tax on all cross border transactions will kill commerce pretty quickly, and I would think the outcry from US businesses would be sufficient to stop this sort of fuckery.

THe US wouldn't need to go that far.

It would simply impose a huge tax on every single Canadian bank that does business in America, thereby effectively cutting them off from the US financial system.

The US wrung the Swiss very hard and got their way. The Canadians are years late to the party.

[Coop D'etat]

The rational thing to do would be to ban anyone with American citizenship from holding an account in Canada; make it a felony in Canada for any American to hold an account there, require proof that people born in America or with an American parent have renounced US citizenship before giving them accounts, and then tell the US that the law no longer applies to Canadian banks so they will not comply with it.

How would that help? That would likely be a violation of the Charter rights of said dual citizenship persons, either unenforceable or unconstitutional by Canadian law. Not to mention is equally intolerable for dual citizens as the proposed new rules.

[UnderAGreySky]

The rational thing to do would be to ban anyone with American citizenship from holding an account in Canada; make it a felony in Canada for any American to hold an account there, require proof that people born in America or with an American parent have renounced US citizenship before giving them accounts, and then tell the US that the law no longer applies to Canadian banks so they will not comply with it.

This is a rational thing? You don't see how this would hit business in Canada when people that work in both countries find it more convenient to hold accounts in each place? Not to mention how much Canadian banks will be hit when all American citizens decide to pull out.

[Fingolfin_Noldor]

This is a rational thing? You don't see how this would hit business in Canada when people that work in both countries find it more convenient to hold accounts in each place? Not to mention how much Canadian banks will be hit when all American citizens decide to pull out.

It wouldn't be a penalty if no one felt any kind of pain.

[Simon_Jester]

This is a rational thing? You don't see how this would hit business in Canada when people that work in both countries find it more convenient to hold accounts in each place? Not to mention how much Canadian banks will be hit when all American citizens decide to pull out.

I think this is only really rational from the point of view of someone who cares more about national sovereignty than they do about taking an economic hit- willing to let the economy suffer a certain amount to prove a point about who is in charge of the banks in the country (the Canadian government) and who isn't (the IRS).

[Aaron MkII]

How did it turn out when America started demanding information from our airlines on passengers who passed through the US?

We didn't do or say anything when they wanted special licenses or passports to cross the border either, even though we are joined at the hip on trade.

Hopefully this doesn't go forward, or doesn't survive a court challenge. Fucking clowns.

[Alkaloid]

To be fair, I think caring enough about nation sovereignty to like the idea of you own government being in charge of your countries banks rather than the country next door is pretty damn rational. I'd say just advising the US that the law does not apply to Canadian banks and that if they really want to do this they can investigate it from the US without demanding Canadian institutions bend to another nations laws and on their own dime. No real need to make new felonies over it unless the US does something stupid like try to make Canada suffer ergonomically for it. At that point the US is obviously engaging in economic warfare with what is arguably their staunchest ally, which opens up some other options for Canada, and it doesn't seem likely that the US is going to do something that stupid.

[Grumman]

I'm with Phantasee. US taxation on non-residents is stupid, but stealing a third of all cross-border income from innocent bystanders in one of your closest allies is just fucking obscene.

[Losonti Tokash]

Wouldn't Duchess' idea be blatantly illegal under the previously mentioned ban on discrimination due to national origin?

[Aaron MkII]

Pretty much.

[Simon_Jester]

It's an awkward case for non-discrimination. I can't discriminate on basis of national origin. But your nation of origin is now trying to force me to enforce their laws on you, so there's a strong practical argument forcing me to discriminate in one way or another. If nothing else because I have to have different banking policies for an American who opens an account than for a Brit- the British government won't ask me to keep certain records, and the American one will.

[The Duchess of Zeon]

You deal with the unconstitutional discrimination against dual citizens by making dual citizenship illegal, which should be within the broad powers of a Parliamentary regime unless the Canadian charter explicitly provides for its constitutionality. At this point it will only be tightening the screws on single-nationality US citizens living in Canada. I suggest that to deal with the further issue of discrimination based on nationality, that problem could be further solved by providing automatic Canadian citizenship to any American entering Canada who will renounce US citizenship on the spot.

I am just suggesting you do what the US would do if confronted with this same problem, because I really, really dislike it that we're trampling on the sovereignty of other countries. If we're not willing to go to war or issue letters of reprisal, then clearly we are not at the stage where there is any cause for disrespecting the rights of another country. I think these tyrannical policies will ultimately come back and bite the US in the ass and I would prefer to see them defied by other countries so that perhaps some judiciousness will return to our government. I was just suggesting a way that might actually work despite the imbalance between our countries.

Sure, it tightens the thumbscrews on average Americans. But that's the only way you can fight back. The US government after all is treating anyone who dares leave America as a tax-cheat until proved innocent, so why not? I think if you provided for automatic Canadian citizenship for any American who renounced their American citizenship, from the moment of their entry to Canada, that you could successfully pass constitutional muster vs. discrimination. Functionally what it would do is guarantee that any American who wants to stay in Canada long enough to need to open a bank account either abandon their plans and leave, or become a single-nationality Canadian citizen.

[Simon_Jester]

I am just suggesting you do what the US would do if confronted with this same problem...

Not quite; the US would probably just totally ignore the law, and laugh if a foreign country tried to impose negative consequences for the US failing to cooperate.

because I really, really dislike it that we're trampling on the sovereignty of other countries. If we're not willing to go to war or issue letters of reprisal, then clearly we are not at the stage where there is any cause for disrespecting the rights of another country. I think these tyrannical policies will ultimately come back and bite the US in the ass and I would prefer to see them defied by other countries so that perhaps some judiciousness will return to our government. I was just suggesting a way that might actually work despite the imbalance between our countries.

That's the tricky bit- the US government has basically learned that it can do whatever it likes because no one else is going to seriously resist US infringement on their sovereignty; it's more trouble than it's worth to do so. Now that the trend's in place, it would probably take something really massive (like all of Europe doing what you propose) to get the US to stop thinking in those terms.

[The Duchess of Zeon]

I meant a hypothetical foreign country arbitrarily powerful enough to also dictate terms like that, Simon. Anyhow, the point I'm trying to make is that the only time I've seen the US back down on anything recently was when Brasil responded to heightened scrutiny of Brasilians by instituting strip searches and such of Americans visiting Brasil. We subsequently haven't heard anything about that.

[Malivotti]

Ok I'll admit I'm pissed at this. Let's get that out of the way. Ok time to start ranting and raging.

This violates Section 8 of the Charter of Rights and Freedoms I believe. I know if enacted Section 11 and 13 is violated. I'd love for this law and the Harper government to hit the Supreme Court and be ruled on.

As for the 30% penalty, well the US needs Canada's resources and trade, more than Canada needs the US. A few slowdowns in oil and natural exports while conducting economic and environmental reviews, maybe hike the cost of electricity sold to offset the penalty while the Canadian Government analyzes the economic impact of this law would be nice way to hit the US government between the eyes with a clue bat.

Dammit what Canada needs is another Trudeau or Jack Layton rather than Harper. Right now the US economy does not need the firestorm this could create, but the US government sure as hell needs a firestorm.

[The Romulan Republic]

You deal with the unconstitutional discrimination against dual citizens by making dual citizenship illegal, which should be within the broad powers of a Parliamentary regime unless the Canadian charter explicitly provides for its constitutionality.

As someone who is a citizen of both America and Canada and who values being a duel citizen, go fuck yourself. Is it legal for the Canadian government to take away someone's citizenship?

Yeah, that's how you deal with discrimination: get rid of the group being discriminated against.

[The Duchess of Zeon]

You deal with the unconstitutional discrimination against dual citizens by making dual citizenship illegal, which should be within the broad powers of a Parliamentary regime unless the Canadian charter explicitly provides for its constitutionality.

As someone who is a citizen of both America and Canada and who values being a duel citizen, go fuck yourself. Is it legal for the Canadian government to take away someone's citizenship?

Yeah, that's how you deal with discrimination: get rid of the group being discriminated against.

Dual citizenship is not a fundamental right. It is a privilege that some countries tolerate. This is especially how the US government regards it, which for example, would have the power under Federal law to strip your US citizenship at whim as an administrative decision without you having any right of recourse to the courts if you took a commission as an officer in the Canadian Forces.

[The Romulan Republic]

Maybe so, but that doesn't make it morally right.

Again, you are arguing that the solution to discrimination is to eliminate the group being discriminated against. I fail to see how this is just.

Your idea would screw over a lot of innocent people.

[The Duchess of Zeon]

Maybe so, but that doesn't make it morally right.

Again, you are arguing that the solution to discrimination is to eliminate the group being discriminated against. I fail to see how this is just.

Your idea would screw over a lot of innocent people.

Because I don't see this as a discrimination problem. I see it as a State Sovereignty problem.

[Straha]

Maybe so, but that doesn't make it morally right.

Again, you are arguing that the solution to discrimination is to eliminate the group being discriminated against. I fail to see how this is just.

Your idea would screw over a lot of innocent people.

Because I don't see this as a discrimination problem. I see it as a State Sovereignty problem.

Never have truer words been spoken, but with exactly the opposite intent.



That said I'm not sure that this is a real issue. Firstly, there is a massive question of enforcement which will be a de facto impossibility. Secondly, I am reasonably certain the article confuses the question of who the IRS regulates with what the IRS taxes. Due to how Social Security, Medicare, and other government programs are structured the IRS keeps tabs on all U.S. citizens, but only levels payment on earnings made inside the U.S. or to U.S. residents. Which is the exact same thing that every other country does, though through different governmental organs. All this law represents is the United States trying to update its laws and give some sort of teeth to its tax enforcement division to find tax dodgers according to its own peculiar system.


There do seem to be bigger questions here, before going on though I'd like to see a less ranty/hysterical article.