Finance Committee on May 29th, 2014

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

I believe they are going to hang together.

[Some hon. members]

Oh, oh!

[The Chair, Conservative, James Rajotte]

Order, order. We have a long night ahead of us.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Yes, we have.

[The Chair, Conservative, James Rajotte]

You can move amendment PV-2 and then you can speak to all of them.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

I'm not allowed to move anything, Mr. Chair, but I don't want to remind anyone here of the rules that I operate under. I understand they have all been deemed to be moved by the mysterious powers of PMO.

I'm at your disposal. If they're deemed moved, I'll speak to them.

[The Chair, Conservative, James Rajotte]

Okay.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

I'm grateful, Mr. Chair, for your generous nature and the aspects of your personality that make you a delight to work with, and that is known widely throughout the House of Commons.

[Some hon. members]

Oh, oh!

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

No, it's true.

The reality of what we're dealing with here is that taking them one at a time makes it particularly challenging, because this is a very complicated bill.

I want to go back and remind everyone—and this is relevant particularly to amendment PV-2, which I'll speak to briefly—what the committee heard from one of Canada's leading tax law experts, Allison Christians, who holds the Stikeman chair in tax law at McGill University. One thing she said about this is that one of the main reasons, therefore, that time is needed to study the IGA, the intergovernmental agreement, carefully and to think about what the implementation act should do in terms of the interpretative work, is that the IGA has inadvertently highlighted an existing unresolved ambiguity about whether the exchange of information is or is not “assistance in collection” as a matter of law.

There are many ambiguities, many questions here that make it particularly inappropriate, as my friend Murray Rankin has already said, to deal with FATCA in the body of an omnibus budget bill that is being moved rather rapidly through this House. Let me go to just one of the concerns.

I appreciate what my friend Mr. Keddy has said, that this is all normal and that it is obvious that U.S. citizens are always identified as U.S. citizens, but as numerous experts have said, including Peter Hogg—whose letter I obtained under access to information and who is Canada's leading constitutional law expert—and including Ms. Christians and others, it's not at all clear that FATCA only applies to U.S. citizens who would obviously be U.S. citizens. As Professor Hogg also pointed out, there's nothing in this that will provide any notice to Canadian citizens, who might also be U.S. citizens under the understanding of “U.S. persons”, that their information has been handed off to the IRS.

There are some very fundamental constitutional law questions here as well as tax law questions.

Let me try to go through my amendments fairly quickly.

What amendment PV-2 attempts to do is basically insert two paragraphs, so that where, on page 76, it says that '“U.S. reportable account” means a financial account that, under the agreement, is to be treated as a U.S. reportable account” my amendment clarifies things, and I think in a way that actually meets what we're hearing from the government's arguments in defence of this agreement, by adding:

other than (a) if the account holder is an individual, a financial account that, at any time during the reporting period, was held by an individual that is (i) a Canadian citizen within the meaning of the Citizenship Act or a permanent resident within the meaning of subsection 2(1) of the Immigration and Refugee Protection Act, and

—“and”, not “or”—is also:

(ii) ordinarily resident in Canada; and (b) if the account holder is an entity that is a company, estate or trust, a financial account that, at any time during the reporting period, was held by an entity that derived its status from the laws in force in Canada.

In other words, this is to provide protection against turning over information that, on a common sense understanding of what being a Canadian citizen is versus being a U.S. citizen, will not expose non-U.S. citizens to the implications of their personal information being turned over to the IRS.

The second of these amendments, amendment PV-3—and again, this is to narrow the understanding of “U.S. person” and is based directly on the evidence that has been already presented to committee—does the same thing through a slightly different approach.

In amendment PV-3, what we've done is clarify, by adding another line on the next page so that we create a new subsection 263 (2.1) to ensure that “U.S. person” is narrowed in its understanding. It would be:

(1) a U.S. citizen or resident individual who is not a resident of Canada.

This is again a clarification based on the best legal advice that has come before this committee.

Amendment PV-4 is very straightforward. It's a change to proposed section 264, which in the current draft of the bill says that a reporting Canadian financial institution “may” designate a financial account to be not a U.S. reportable account, if the following circumstances prevail.

My amendment PV-4, and if my colleagues are keeping up with me, it's at line 39 on page 77, is a straightforward change from the discretionary “may” to the mandatory “shall”. This is a further effort to ensure that, as Murray so eloquently describes it, the FATCA web doesn't ensnare any more people who are completely inappropriately engaged by it.

In the last amendment to clause 101, or I think it's my last amendment to clause 101, but it might not be my last one. No, there are a few more. Amendments PV-4, PV-5 and PV-6 are all on clause 101.

Again, they're to the same effect, to repeat that due diligence has been used by the reporting Canadian financial institution to make sure that the form is authorized by it or the minister is the only one that can be used. That's in PV-6.

PV-5 again, was very much like PV-4 “...by an individual who is a resident of Canada for purpose of this Act.”

Turning to PV-6 which amends clause 101 on page 78, this one is the one I just referenced, about making sure that due diligence is used. It's an inserted clause that would occur at line 22. The previous line is:

265. (1) Every reporting Canadian financial institution shall establish, maintain and document the due diligence procedures set out...

This amendment would add:

The due diligence procedures established—

—which are already in the act—

—by the reporting Canadian financial institution shall provide that only a form authorized by it or the Minister may be used.

PV-6 is, as you may recall, based on the evidence that we've heard in committee, based on a recommendation that was also made by Allison Christians, the Stikeman chair in law at McGill University. That concludes my amendments to this section.

Mr. Chair, in a brief closing, this is really fundamental. We know that this bill, if passed as it is, going to go before the Supreme Court. We know this from the best constitutional legal brain in this country, Professor Peter Hogg, who by the way was given an A in constitutional law by the late Jim Flaherty. We have that last anecdote from Jim: he agrees that Peter Hogg is the constitutional expert in Canada. Professor Hogg says very clearly that this act contravenes section 15 of the charter. I don't know why we're pushing it through in an omnibus budget bill when it will clearly fail at the Supreme Court.

[The Chair, Conservative, James Rajotte]

Thank you for your comments.

We'll go to Mr. Allen on debate, please.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you very much, Mr. Chair.

Thank you, Ms. May, for your comments.

I have a couple of things, one of which I would like to point out in a second to get a clarification from our officials.

First, a number of those amendments that are being proposed again bring us back to the comment about restrictions within the IGA that would ultimately make the IGA non-implementable, which would ultimately lead to the U.S. imposing FATCA on Canada itself in the absence of an IGA. I can't support that and just to confirm that with the official....

Also, if you wouldn't mind, perhaps you could take us through a new subsection 265(5) which also relates to if the Canadian financial institution discovers U.S. indicia in the electronic search. Would you take us through that? There is a process that they need to go through to seek to review the information on whether it is in fact correct.

[Brian Ernewein]

Maybe I'll start.

To the first question that was asked, yes, and I'm sorry I don't mean to bore anybody or to take too much time of the committee, but there's a clear reference in the intergovernmental agreement itself to the scope of the agreement and it's to apply to U.S. persons, which includes U.S. citizens or resident individuals, as well as a listing of entities.

As to the effect of the proposed amendments, I believe a couple of them would be to try to narrow it so that U.S. citizens who have other characteristics, perhaps Canadian citizenship or Canadian residence, would not be covered by the obligations. The financial institution would not be subject to seeking information in respect of those U.S. citizens who have these other characteristics. I don't believe that the agreement is intended to...and as a negotiator to it that we thought we were negotiating it to do that and have that narrow an effect.

I'll turn it over to my colleague on the second question.

[Ted Cook]

Your second question relates to, I believe, subsection 265(5) of part XVIII. An amendment would effectively insert sort of a read as rule into the operation of the IGA to require that where an electronic search of the lower value accounts in particular where U.S. indicia are found there is a mandatory requirement for the banks, for the financial institution, to seek to cure those U.S. indicia. That's essentially going back to the account holder and asking them to provide certain additional information which may clarify that they are not in fact an individual who is a U.S. person for purposes of the agreement.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Essentially by definition there's an information point there?

[Ted Cook]

We've inserted what's selective under the agreement with respect to these accounts. It's made mandatory that they seek to cure the indicia.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Okay, thank you very much.

Thank you, Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Allen.

We're go to Mr. Cullen, please.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

I just want to get the department officials' comments particularly on PV-4, the changing of “may” to “shall”. I wondered if Mr. Ernewein had any thoughts, or if he's looked at this particular amendment that's been put before the committee. What could the consequences be?

[The Chair, Conservative, James Rajotte]

Mr. Ernewein, please.

[Brian Ernewein]

Certainly.

I think the proposed amendment, which currently as proposed allows the financial institution to designate certain low-value accounts, would change the nature of it to require a financial institution to make that designation, to effectively exclude all accounts below $50,000.

The reason for the proposal, the way it's framed, is to allow that flexibility for financial institutions and their clients, in terms of trying to come up with the most efficient way of collecting information. To explain that a little bit further, it may be the case that some financial institutions will choose not to collect any information in respect of accounts having a value of less than $50,000, and if and when those accounts exceed $50,000, to try to get that information at that time. What we understand is that some financial institutions believe that it's in their and their customers' interests to try to seek that information as to their account-holder status when the account is opened, so it's not necessary to try to get that information at a later point in time. That's the reason for the legislation as it's currently framed.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Are you suggesting that PV-4 would restrict the flexibility of banks and would require them to report more than they would otherwise? I'm trying to follow you on this one, on these low-value accounts that's referenced in this section.

[Brian Ernewein]

It would reduce it to a single option; that is, they would not be able to collect that information on account opening if the account was less than $50,000. That might entail higher costs for them and for their customers if they only are able to do it later on.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Why the higher costs, if it suggests on these, because we're talking about low-value accounts, that the “may” moves to a “shall”, it requires the drop, and banks don't report?

[Brian Ernewein]

Well, if a particular financial institution seeks to have a certification of some sort from their customer when they open the account, that, in some circumstances, I would surmise, would be at a fairly low cost. There may be more costs in trying to find them later and have this exchange of paper when the account goes above $50,000.