Order, order, order.
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.
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.
5:15 p.m.
An hon. member
I want a recount.
5:15 p.m.
Conservative
The Chair Conservative James Rajotte
I want to start with Professor Cockfield.
Professor, I've appreciated your appearance before this committee in the past. I think if you were to ask the Canadian government and Canadian financial institutions, they would obviously prefer that FATCA did not exist. They would obviously prefer as well that the U.S. taxed its citizens based on residence and not on citizenship. We would all prefer that. I wish that were so, but it is not so. We seem to be linking in a bunch of issues. The fact is whether FATCA exists or not, the U.S. is still going to tax based on citizenship, not residency, until the American government changes that policy—which I believe it should. But until they change that policy....
I think both you and your colleague, who was on the previous panel, are saying there's a false dichotomy between complying with FATCA and implementing the IGA. You say there is another option that the government has. I just perhaps want you to respond. We had a tax lawyer on the previous panel, Mr. Roy Berg, who said:
Had it not entered into the IGA, Canadian financial institutions would have faced the unenviable dilemma of either complying with Canadian law and risking FATCA's 30% withholding tax; or complying with FATCA and risk violating Canadian law.
Is that statement not correct?
5:20 p.m.
Professor, Faculty of Law, Queen's University, As an Individual
Yes, that is correct.
5:20 p.m.
Conservative
The Chair Conservative James Rajotte
But if we follow your advice, which is to not implement the IGA and perhaps try to challenge it in NAFTA and other measures, or seek other ways and continue to put pressure on the U.S. not to follow through with implementation of FATCA, Canadian institutions would then have to provide information directly to the IRS, instead of through the IGA, which is providing information to the CRA. I recognize that those are probably the three scariest letters to people in both countries. However, as a Canadian, I would certainly prefer that dual citizens or U.S. citizens who are permanent residents in Canada provide that information to the CRA rather than to the IRS. Is that not a fair statement?
5:20 p.m.
Professor, Faculty of Law, Queen's University, As an Individual
Well, no.... I mean it's certainly a fair statement, but it's slightly different, I think, from the first thing you put forward.
I'm suggesting, and I think my colleague, Professor Christians, is as well, that by entering into the IGA we are in compliance. That has bought us time. The July 1 withholding tax, as I understand it, as a matter of technical law, will not kick in because we've complied. We're a democracy, a sovereign country. We're investigating certain concerns surrounding the IGA, and it will be implemented at a later date. In fact, I think it could be implemented as of July 1, amended, possibly even unilaterally by Canada, especially in light of the fact that the Treasury Department has signed this, whereas Congress isn't implementing it.... This creates a whole host of problems that Professor Christians addressed. So there may be a legal or technical way to amend the IGA and avoid the economic sanction threatened by the Americans.
5:20 p.m.
Professor, Faculty of Law, Queen's University, As an Individual
We signed it.
5:20 p.m.
Conservative
The Chair Conservative James Rajotte
Signed it—but to take it out of the BIA. It seems to me that the reaction of the U.S. would be, “Well, you've signed the agreement, but you haven't in fact implemented it”.
5:20 p.m.
Professor, Faculty of Law, Queen's University, As an Individual
Well, then, perhaps our answer should be, “Why don't you implement it through your legislative process as well, and then once that's done we'll implement it?” The Americans, again, have promised reciprocity. There's very little chance, most experts suggest, of the U.S. Congress ever taking action. If they're serious and they want this bilateral agreement with Canada, then they ought to implement it in the same way they've altered treaties since 1936 with Canada.
5:20 p.m.
Conservative
The Chair Conservative James Rajotte
But going down that road, would the Canadian financial institutions not then provide the information to the IRS? You don't think they would have to?
5:20 p.m.
Professor, Faculty of Law, Queen's University, As an Individual
No, I think that the Canadian government could negotiate at this point a delay of the whole process. Again, we're in compliance currently with U.S. demands. I understand that the government feels it's caught between a rock and a hard place, but there may be wiggle room to delay this to address the serious concern that so many Canadian have.
5:20 p.m.
Conservative
The Chair Conservative James Rajotte
I just have a minute left, but, Mr. Hensel, do you want to respond to that? You certainly pointed out the benefits in terms of the difference between allowing FATCA to be implemented versus the benefits of the IGA itself. What is your recommendation to the government with respect to perhaps going down the route that Professor Cockfield advises?
5:20 p.m.
General Counsel, Corporate Secretary and Director of Policy, Investment Funds Institute of Canada
It's a good question.
There are clearly a lot of issues to be resolved. The problem we've got is that for the last several years, as the negotiations on the IGA have been progressing, our members and financial institutions in Canada generally have been expending significant amounts of money to bring themselves into compliance on the assumption that there will be an IGA.
I think that an IGA based on certain.... The framework that is in there now, a delay or a.... It may be appropriate to do that. The real shame would be if all that money were wasted by something, if the IGA were completely thrown aside, or what have you. I know that's not what's on the table, but a significant amount of investment is already in the process now, and I think their goal has been to minimize the impact on Canadians overall.
5:20 p.m.
Conservative
The Chair Conservative James Rajotte
I appreciate that.
My time is up, so I will move to Mr. Cullen, please.
5:20 p.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Thank you very much.
Mr. Reed, you said something in your testimony today in response to a question about tax-free savings accounts under this agreement becoming perhaps expensive and useless. Could you expand a little bit on that? That is on the compliance side of things, I believe.
5:20 p.m.
Attorney, White and Case LLP, As an Individual
That is on the compliance side.
To be clear, that's not a cause of FATCA. That is a U.S. tax problem under the Internal Revenue Code, and the way that the Internal Revenue Code classifies tax-free savings accounts.
The only issue with FATCA is the amount of information being reported to the IRS by way of the CRA, and then the compliance issues that such information reporting generates for average Canadians. The issue I was talking about with the tax-free savings account sort of works as follows. In Canada, everyone knows that a tax-free savings account, if you own a mutual fund you get some dividends and that mutual fund dividend is not taxable, but in the United States that tax-free savings account for your U.S. tax purposes doesn't protect that mutual fund dividend. And then there is the issue of how that—
5:25 p.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Sorry, I'm going to interrupt you a bit because we're going to bump up against votes here.
I will go to Mr. Hensel for a moment.
One banking official said that this is a bad deal and a terrible situation.
One of the things we're looking to do at this committee—we shouldn't pretend this is a proper study of this 336-page omnibus bill. We're spending exactly 120 minutes on a component of this tax treaty, or maybe not a tax treaty.
In terms of trying to improve it and offer amendments, a suggestion was made to delineate who was caught up in this net. We have agreed that we are not a tax haven—and I don't think we're any threat to become a tax haven, and any suggestions of that are foolish, by the American or Canadian perception—but we could delineate who is actually being targeted and not allow Washington to do all of that designation. If a U.S. citizen is temporarily living in Canada, that is an obvious person the IRS is looking to get after.
As has been explained by our witness, Ms. Swanson, under this bill, somebody who was born in Canada, who by any definition would be Canadian, is going to have their information transferred to the IRS without their knowledge, or consent certainly, and who has for perhaps their entire lives deemed themselves to be Canadians. Should we seek out amendments to delineate more specifically, under our powers as legislators, who will actually be impacted and affected by this intergovernmental agreement?
5:25 p.m.
General Counsel, Corporate Secretary and Director of Policy, Investment Funds Institute of Canada
I think the determination of who is impacted is already a done deal. That's a decision that was made under U.S. tax law, which, unfortunately, taxes U.S. citizens based on citizenship, not on residence.
5:25 p.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
But they are perhaps one of the most arcane definitions of citizenship.
We've talked about informing people, and I think there is a responsibility on the government's part, certainly having signed this deal and negotiated this deal, to tell Canadians who is going to be impacted. We had the minister here earlier, and on three occasions he said Canadians will not be impacted by this agreement.
Is that a fair thing to say?
Is a dual citizen a Canadian?
5:25 p.m.
General Counsel, Corporate Secretary and Director of Policy, Investment Funds Institute of Canada
I would argue that they are, yes.
5:25 p.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Okay. So if the purpose is to better inform the people who may be impacted by this bad deal from a terrible situation, is it right for the Finance Minister of Canada to suggest that if you are a dual citizen, Canadian-American, you are not impacted by this deal, that you are not a Canadian?
5:25 p.m.
General Counsel, Corporate Secretary and Director of Policy, Investment Funds Institute of Canada
It's difficult to answer that. I'm not sure exactly what he meant by Canadian. If he was narrowing it—
5:25 p.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
We'll pull up the testimony because it was very explicit.
Mr. Cockfield, the question asked was, will Canadians be impacted by this deal? On three occasions, the Canadian finance minister said they will not.
5:25 p.m.
Professor, Faculty of Law, Queen's University, As an Individual
That's simply not accurate. I mentioned dual citizens. As just one example, let's say an honourable member retires after years of good service to their country, and you take a six-month contract in New York City with a consulting service, let's say. It's a wonderful job opportunity. You're issued a green card, a work visa. You cross the border. But before you make that decision as a green card holder, when you return to Canada you'll be subject to this reporting regime. It's only a six-month contract.
Do you want, as Mr. Reed indicated, to hire an accountant, a U.S. lawyer, and so on, to get you into compliance? Even U.S. tax lawyers don't agree on how this works, but it may run for the next eight years. That's thousands of dollars every year. Just that one element is going to inhibit cross-border mobility.