Thank you, Mr. Chair.
Thank you so much for inviting me to speak to the committee regarding the portion of Bill C-31 that enacts FATCA in Canada.
While tax law professors are generally not known for brevity, I hope to be succinct and clear in conveying two points to this committee. First, Canada generally does not and should not furnish information to foreign countries on Canadian citizens living in Canada, or assist countries in gathering any information in aid of tax administration, except according to very specific standards to which they formally agree. In that regard, the agreement before you falls short, as it's not clear that both sides are agreeing to the same thing, nor that these standards are respected when they subject many Canadian citizens to foreign financial jeopardy, and even criminal liability.
Secondly, Canadian officials may not furnish information to other countries except under very specific terms. Thus the lack of clarity in Bill C-31 may expose Canadian officials to liability as well.
I'm going to try to explain these two points in simple terms and therefore I'm going to risk oversimplification and I apologize for that. I'm more than happy to explain the complex legal concepts formally should you have any questions for me. Please let me state at the outset that I fully understand the purpose of this law. We must ensure the integrity of the global tax system. Canada's government has demonstrated its commitment to cracking down on tax evasion by working to exchange relevant tax information with other countries. That's a goal we all want to work toward, yet there are important limits on this practice. We are working here with one of the world's most important treaties, important because of the close connections and shared economic interests of Canada and the United States.
There are long-standing limitations on how we and how countries generally react to the revenue and penal laws of other countries. We call these limitations the "revenue rule". The revenue rule says that Canada won't lend assistance to the U.S. to collect U.S. debts of people who were Canadian citizens when the debts arose. Period, full stop, no qualifications. To amplify this point, Canada does not assist in tax collection in any case unless the U.S. tax claim has been finally determined after a full measure of due process. Put this another way, we have a long history of not assisting or allowing other countries to engage in revenue collection activities in Canada for their own tax purposes.The U.S. has a very similar, if not stricter position.
But FATCA, as reflected in the bill before us today, tells us to ferret out our own citizens as likely U.S. tax debtors and present them and their financial resources to our most important treaty partner in an agreement of dubious status that may not even be a tax treaty. The bill suggests that this will be done in furtherance of the existing tax treaty. It goes significantly further. It forces us to ask ourselves how we can open our citizens and their money to the U.S., yet claims this does not constitute lending assistance. Canada must protect Canadians, and that is what the lending assistance rule and the limits on information disclosure do. They assert that the U.S. should have no enforceable tax claim that should be assisted by Canada on Canadians.
We need to make clear we won't take part in any enforcement in any form of assistance, whether it be in information or collection when ·it comes to Canadian citizens. I believe that is the spirit in which the government has accepted the terms of FATCA in the bill before the committee today, but this spirit must be reflected in the law. We cannot use a phrase like "information gathering” to blind ourselves to what is really occurring. Information sharing is not the end, it is the beginning. Our information exchange must also comply with Canadian law concerning when Canadian tax officials may divulge confidential taxpayer information. The law is not ambiguous: an official may disclose protected taxpayer information when we have agreed to do so under a tax treaty or other listed international agreement and not otherwise.
FATCA as implemented in Bill C-31 is not a tax treaty in U.S. law, nor is it a protocol to our tax treaty. Indeed, I am not sure what it is and I am not alone. Lawsuits have been initiated in the U.S. on this point and the issue is far from resolved.
The fact is that with this agreement, the U.S. will be the only nation with which Canada has both a tax treaty and a separate tax information exchange agreement, making the relationship between these two documents all the more confusing. So, what is this document when the two parties don't have a common view? If we do not know for certain, we may be in for a rude awakening in the context of civil or even criminal litigation.
There also appears to be a false impression that there is urgency in this matter, yet the U.S. has a list of countries it will "deem" to have an agreement like this in place, and Canada was the very first country on that list and it was there before we signed an agreement. Even if we weren't on the list, the U.S. Treasury recently announced another 18-month grace period, so we have the time to get this right. Let us not act in haste and repent at leisure.
I thank you for the opportunity to make these remarks today.