Montreal Quebec tax lawyer

Canada goes to tax extraterritorial U.S. against Canadian financial institutions. FATCA arrived on 1 July 2014.

The United States announced in 2010 the war against foreign bank accounts held by U.S. citizens, and foreign financial institutions against the housing. Canada finally fell instantly deciding to bow to American control. Tax avoidance through the use of bank accounts abroad is not new. The OECD announced among others during the 1980s struggle against undue tax competition by low-tax country, or "tax havens" as they are referred. And G20 countries such as Canada and the United States have generally provided in their tax laws anti-avoidance provisions designed to repatriate certain foreign earnings.


However, despite all good intentions, the war is far from over as traditional tax collection efforts are largely ineffective. The Economist magazine reported last year that some experts believe that tax havens have good wealthy amounts to beyond twenty-one (21) trillion. Yes you read that right. Not billions, but trillions!


A modern manifestations of this war, and some say the entry into massive scene of the United States in this regard, began in 2008. U.S. state in 2009 then brought a significant victory against UBS and, therefore, formerly impenetrable wall against the famous Swiss banking secrecy. From there, the message was clear. The United States no longer tolerate their citizens escape the tax audit of the state housing funds abroad. As proof, the U.S. slashed the wall of the Credit Suisse Bank in the last days.


The United States no longer limited to bank accounts in tax havens. War is indeed also initiated against the bank accounts of financial institutions in industrialized countries such as Canada. Now, Canada and all other countries of the world are likely to be deemed to be potential areas of tax avoidance for U.S. citizens resident there, unless these countries are willing to oblige those financial institutions to become the eyes and ears of the IRS to their own residents!


Recall that, unlike Canada, Americans are taxed on the basis of citizenship, not residence, and must therefore produce their annual tax returns in the United States. As unusual as this may seem, a child born in the United States, and who acquires U.S. citizenship by doing so, is required to produce its life American statements, even if there resided a few days .

It is estimated that Canada has become the land of residence of more than one million American citizens including a significant number do not meet all of their U.S. tax obligations. These Canadian residents (American citizenship) are passive consequence of penalties which may be significant.


For all these reasons, and strong victory against Switzerland, the United States decided in 2010 to use all their economic power so as to compel financial institutions to foreign countries to become somehow administrative agents of the Internal Revenue Service (IRS). It was then that the Americans adopted their Foreign Account Tax Compliance Act ("FATCA") to compel disclosure to the IRS revenue outside the country by simple American citizens, and certain other entities controlled by as American societies.

U.S. threat has important teeth. Any State which does not extend to the American superpower will financial institutions be subject to a draconian penalty, a tax deduction at source of 30% on their investment income from U.S. sources.


It is therefore not surprising that a large number of countries have lowered the flag and accepted the influence of the American state. In fact, the FATCA gives them some choices. The country in question may agree to enter into an Intergovernmental Agreement (a "IGA") with the IRS in which it agrees to manage the FATCA in his country and bring himself questions IRS income (AGI Model 1). Alternatively, an IGA can be concluded that financial institutions report themselves such income directly to the U.S. government (IGA Model 2). If no agreement is n'conclue, the 30% withholding applies, subject to certain exemptions.

Given this potentially devastating threat to the operations of their domestic financial institutions, thirty countries have agreed to sign such an agreement with the United States and thirty other agreements are about to be concluded. Seen on the lists of countries Cayman, Switzerland, Panama, Liechtenstein, Luxembourg Islands. Which, during the 2000s and before, would have anticipated such a submission to the U.S. authority?

Obviously, any acceptance of an IGA is the result of a top U.S. political and economic dominance exercise that actually offers no choice to any country which is pressed lemon. One can afford to assume that Canada would not have the same results if he decided to try a Canadian FATCA!

FORGET 1812 - CANADA abdicated

Like other signatory countries IGA Canada there has also been interest or impotence. On 5 February 2014, giving obviously any argument of extraterritoriality or constitutionality, Canada announced the conclusion of an IGA with the United States. Canada went on subsequently incorporating the necessary amendments to the Law of Income Tax (Canada) in Bill C-31, currently at the stage of consideration by the Finance Committee of the House of Commons . If all goes as agreed, the obligations accepted by Canada FATCA disclosure will become law in Canada on July 1, 2014, in a little over a month.


Obviously this creates a whole controversy in several areas. Many U.S. citizens are nervous. Nervousness extends surplus certain financial circles given concerns about the interpretation to be given to Canadian law. Overall, there are significant textual differences between FATCA, Canada IGA, IGA with other countries, and Bill C-31. These differences fit in terms of the interpretation of subjugation. It is particularly concerned about the imposition of Canadian trusts holding investments in the United States.

I will have the opportunity in the coming weeks to comment on these differences of interpretation, and address issues of constitutionality and application. If the discussion between the United States and Canada seems for now largely complete, target financial institutions still have their say. And they must make decisions necessary to deal with uncertainty prevailing.

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