Evidence of meeting #34 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was fatca.
A video is available from Parliament.
Conservative
Mark Adler Conservative York Centre, ON
Thank you, Mr. Chair.
Thank you, witnesses, for being here this afternoon.
I do have some questions, and I want to start with Mr. Berg, if I may.
The U.S. government is flipping over the sofa cushions looking for ever dime, aren't they?
Director, US Tax Law, Moodys Gartner Tax Law LLP
It seems that they are doing that.
Conservative
Mark Adler Conservative York Centre, ON
Yes, and that's really the purpose behind FATCA—one of the purposes.
Director, US Tax Law, Moodys Gartner Tax Law LLP
It is an information grab, I would say.
When we look at the actual tax dollars collected from U.S. citizens residing abroad, the IRS came out with statistics two years ago that said only 6% of any returns filed from abroad ever owe any U.S. tax. This is not a big tax grab; it's a compliance and a data grab.
Conservative
Mark Adler Conservative York Centre, ON
How much would you say it is, about 800 million or so? That's some of the estimates—
Director, US Tax Law, Moodys Gartner Tax Law LLP
Is that 800 million U.S. citizens residing in Canada?
Conservative
Mark Adler Conservative York Centre, ON
No, $800 million in revenue for the treasury. That's some of the estimates kicking around.
Director, US Tax Law, Moodys Gartner Tax Law LLP
I don't have that figure, I'm sorry.
Conservative
Mark Adler Conservative York Centre, ON
Okay.
In terms of interpretation of the rules, there were some problems before FATCA with the IGA. The CRA was not interpreting the rules to the satisfaction of or in accordance with the agreement, and then came FATCA.
Is there a more stringent regime in place? By that I mean: these are the definitions; these are the rules that need to be applied, and there's not going to be any room for maneuvering, as there was under the IGA.
Director, US Tax Law, Moodys Gartner Tax Law LLP
The IGA, in fact, has its own set of rules. But as I said before, your treasury is aware that model 1 IGAs require domestic law to implement. So there is the potential for some deviation from existing definitions.
Conservative
Mark Adler Conservative York Centre, ON
Some people see it as an invasion of privacy. Some people see it as a tax grab. In the event that Canada does not.... We've signed the agreement, but, say, some banks don't comply. What are the repercussions?
Director, US Tax Law, Moodys Gartner Tax Law LLP
If some banks don't comply, then under FATCA, they would be non-participating financial institutions, and there would be a 30% withholding tax on them. And that's a withholding tax and not a withholding-against tax. It is a tax. You don't get it back.
Under the IGA, Canadian financial institutions only slip into that non-participating classification after 18 months of continuous notification by CRA that they're not compliant, and they need to get compliant. So there's a very big window to get things in order.
Conservative
Mark Adler Conservative York Centre, ON
Okay, so in terms, then, of consistency and predictability, and given the fact that Canadian banks are now some of the most liquid in the world, is it not in the Canadian banks' interest to clearly be a participant?
Director, US Tax Law, Moodys Gartner Tax Law LLP
It is in the Canadian banks' best interest to be a participating financial institution, that's correct.
Conservative
Mark Adler Conservative York Centre, ON
Okay.
Now, Ms. Christians, could you rebut to some of things Mr. Berg has said? Do you have any difficulties with what he said just now?
Professor, H. Heward Stikeman Chair in Tax Law, McGill University, As an Individual
I don't disagree with Mr. Berg. He's absolutely right that the banks have a choice, and they have to make their own choice as to whether or not they're going to fulfill the obligations placed upon them.
I'm talking about something different. I'm talking about what the Government of Canada and the Government of the United States have agreed to in a tax treaty. This is not that. I'm not sure what it is. The Government of Canada has 95 tax treaties. I can't find one that's ever been passed in the form of an omnibus budget bill. So I don't really know what it is. That's my question. What is this? In what sense does this obligate the Canadian government? If we don't really understand that, then I think we run a risk of finding out later.
Conservative
Mark Adler Conservative York Centre, ON
So is your difficulty, then, that it's in the budget bill? Or is your difficulty with the fact that you don't know, you can't define what it is?
Professor, H. Heward Stikeman Chair in Tax Law, McGill University, As an Individual
Well, section 241 of the—
Professor, H. Heward Stikeman Chair in Tax Law, McGill University, As an Individual
The difficulty is that the Income Tax Act is very clear in the manner and circumstances under which a person can furnish confidential taxpayer information. The circumstances under which they can do that is under a tax treaty or a listed international agreement. So that is a procedural point that is muddied.
And the second part of that is that the tax treaty we have is built on a very strong, centuries-long foundation: public international law and common law on the revenue rule. This accord, or whatever it is, appears to not have considered that. It's just something to think about and something to consider, whether the Government of Canada has a relationship with the United States that would counter that—
Conservative
The Chair Conservative James Rajotte
Thank you. Sorry for interrupting, we do have other members.
Mr. Adler, you're over your time.
So we're going to Mr. Cullen, please.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Thank you, Chair.
Thank you to our witnesses.
I want to pull back from the 50,000-foot level for a moment.
Under this agreement, who defines who is caught up by FATCA? Who decides who's in and who's out? Whose information will be sent to the IRS? Who decides? Is it Canada? Is it the IRS? Is it the CRA? Is it the bank?
Mr. Berg, maybe you can start us off.
Director, US Tax Law, Moodys Gartner Tax Law LLP
First of all, the seminal question is, are you a financial institution or not? If you're a financial institution under Canadian law, then you're obligated to do certain things. Those certain things include figuring out who your U.S. citizen depositors are.