Thank you very much, Mr. Chair.
I welcome this chance to address the committee.
I am joined today by senior officials from the Canada Revenue Agency: Ted Gallivan, the Assistant Commissioner of the International, Large Business and Investigations Branch, and Marie-Claude Juneau, the Director of the Access to Information and Privacy Directorate in the Public Affairs Branch.
Mr. Chair, as the world becomes increasingly globalized and cross-border activities become the norm, tax administrations need to work together to ensure that taxpayers pay the right amount of tax to the right jurisdiction. Cooperation with other tax administrations is critical to protecting the integrity of Canada's tax system and revenue base. In fact, Canada is part of one of the world's largest treaty networks, with no less than 92 tax treaties and 22 tax information exchange agreements in force.
In 2010, the U.S. Congress passed the Foreign Account Tax Compliance Act, or FATCA. FATCA requires non-U.S. financial institutions to enter into agreement with the Internal Revenue Service, the U.S. tax department better known as the IRS. This act, therefore, requires the reporting of information on accounts held by U.S. residents and U.S. citizens, including U.S. citizens who are residents or citizens of Canada.
If a financial institution, Canadian as far as we are concerned, is not compliant with FATCA, FATCA requires U.S. payers, that is, corporations and other entities that pay amounts such as interest or dividends, making certain payments of U.S.-source income to this financial institution, to withhold tax equal to 30% of the payment.
This 30% FATCA withholding tax can also be levied in respect of a compliant financial institution, on individual account holders that do not provide documents showing that they are U.S. residents or U.S. citizens. In some circumstances, FATCA could even require financial institutions to close the accounts of certain clients.
In February 2014, Canada and the U.S. signed an international intergovernmental agreement, an IGA, under the longstanding Canada-U.S. tax treaty. We should mention that the first fiscal agreement between Canada and the United States dates back to 1942. While our countries have been exchanging tax information without any problems for decades, this 2014 agreement provides for an enhanced exchange of financial information to improve compliance with our respective tax laws.
Less known is that the agreement is reciprocal. So, the IRS is required to provide the CRA with enhanced information on certain accounts of Canadian residents held at U.S. financial institutions. The intergovernmental agreement was signed in February 2014 and legislation to amend the Income Tax Act to reflect the agreement was passed by the Canadian Parliament in 2014.
Canadian financial institutions that comply with the IGA and related Canadian legislation are now exempt from the 30% withholding tax. Further, Canadian financial institutions report to the CRA the financial accounts they maintain for U.S. citizens. We, in turn, securely transmit that information to the IRS.
Concerning privacy, the CRA is committed to administering this agreement, and all of Canada's tax agreements, in good faith. During the drafting process of the agreement with the Americans, the CRA, together with the Department of Finance, took great care to consult with the Office of the Privacy Commissioner (OPC). We received valuable input and adopted our approach accordingly as the negotiations progressed.
The CRA completed a privacy impact assessment in August 2015. The goal of this assessment was to identify, assess, and mitigate privacy risks. We then submitted this assessment to the Office of the Privacy Commissioner for review. These communications with the OPC and the resulting actions were undertaken with the specific intent of protecting taxpayer privacy.
Information can be disclosed only to persons or authorities who assess, collect, administer, or enforce the taxes and tax laws to which the convention applies. This information can be used for income tax purposes only.
The IGA further stipulates that the information exchanged is subject to strict confidentiality and other protections provided for in the convention, including the provisions limiting the use of the information exchanged.
The CRA exchanged information with the IRS on September 30, 2015. This exchange was done while the CRA followed all of the confidentiality protocols of the treaty and the IGA. Just over three months ago, on January 4, 2016, the CRA received the OPC's recommendations pertaining to the agreement.
My officials have provided to the committee both the OPC recommendations and a copy of our response to them for your information. It is important to mention that, following our submission to the OPC, none of their recommendations suggested that we were not to share this information last September. The next annual transfer of records with the IRS is scheduled for September 30, 2016.
I want to reassure Canadians that all tax treaties and exchanges of information are subject to strict confidentiality requirements. Mr. Chair, this is a priority for our government.
These information-sharing agreements are very important because they allow us to better combat tax evasion and tax avoidance. Canadians are telling us that they want us to crack down on tax evasion and tax avoidance, and the government is committed to do so, as I mentioned earlier this week. This sharing of information is critical to allow us to follow through on that commitment to Canadians.
In conclusion, I emphasize that Canada and the international community continue to move ahead towards greater tax transparency. But rest assured that confidentiality of taxpayer information remains a fundamental cornerstone of Canada's tax system.
Thank you for your attention.
