Flaherty Slams FATCA

By ExpatBriefing.com Editorial 22 September, 2011

Canada is not a tax haven, the country's Finance Minister, Jim Flaherty, has said, warning that any attempts by the US to rigidly impose its Foreign Account Tax Compliance Act on Canadians would accomplish little.

In a letter to several US publications, Flaherty argued that both Canada and the US share a common value in the fight against tax evasion, with each believing "in fair tax systems where everybody pays their share". He is, however, concerned about the impact FATCA will have on Canadian taxpayers. The legislation, passed in March, 2010, requires foreign financial institutions (FFIs) to report US citizens holding more than USD50,000 in a depository or custodial account to the Internal Revenue Service. It is to apply after December 31, 2012.

Flaherty has previously spoken of his desire to see Canada's financial institutions exempt from the FATCA regulations, arguing that subjecting them to it would result in "unnecessary red tape". In his recent letter, Flaherty stressed that "FATCA has far-reaching extraterritorial implications. It would turn Canadian banks into extensions of the IRS and would raise significant privacy concerns for Canadians."

He was clear that "people do not flock to Canada to avoid paying taxes", and that, with a tax information exchange agreement already in place, there is an existing way of addressing tax issues. There is, therefore, already a system that works. As a result, Flaherty is clear that "to rigidly impose FATCA on our citizens and financial institutions would not accomplish anything except waste resources on all sides".

Another key issue, affecting dual US-Canadian citizens and their relatives living in Canada, is, Flaherty says, rooted in the IRS's Foreign Bank Account Report (FBAR). In his opinion, most of these citizens hold only distant links with the US.

He said that: "Because they work and pay taxes in Canada, they generally do not owe any taxes in the United States in any event. Their only transgression is failing to file the IRS paperwork they were never aware they were required to file." Flaherty believes that, as these individuals are "not high rollers with offshore bank accounts", they are rather "people who have made innocent errors of omission that deserve to be looked upon with leniency".

Instead, the prospect of having to comply with such regulations will impact on the lives of Canadian people, according to Flaherty. He says that the threat of prohibitive fines for simply failing to file a return they were unaware they had to file, "is a frightening prospect that is causing unnecessary stress and fear among law abiding hardworking dual citizens".

While Flaherty is adamant that the Canadian government supports efforts to crack down on legitimate tax evasion, he feels that these US measures do not achieve that goal.

A comprehensive report in our Intelligence Report series giving a country-by-country analysis of offshore investment funds, stock exchanges and trusts, with an analysis of the US QI regime, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp

Tags: Individuals | Expatriates | Tax | Offshore Confidentiality | Law | Banking | Offshore | Legislation | Offshore Banking | Canada | United States | Regulation |

 





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