Finance Committee on May 14th, 2014

[Darren Hannah]

I'm not fully following the question, but the way it works is that the obligation of the institution, in the case of pre-existing accounts, is to look at the accounts and the information the institution has on file. If there is nothing to suggest that the account holder is a U.S. person, then there is nothing for the financial institution, at that point in time, to report to CRA, because there's no indicator to suggest that the person could be anything other than a Canadian.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Mr. Richardson, do you have a comment on this?

[John Richardson]

The whole focus of this process has been the protection of the banks. Mr. Brison asked a question. He first asked if any of these people even know how many people might have been affected by this, and there was no satisfactory answer given. He's suggesting a million. That's a number that's consistent with a number of things that I've heard.

This is a life-altering, monumental event for people who.... Let's start off with people who are not U.S. citizens in any meaningful sense but just happen to have been born there, if you can imagine. You heard Lynne Swanson talk about this yesterday. What is happening is that there is an environment in which people wonder.... I get emails all the time asking, “Am I a U.S. citizen?” The most frightening question for these people today is, are you or have you ever been a U.S. citizen?

One of the reasons to delay this is to at least include in the discussion something other than the financial institutions and understand the incredible impact this whole thing is having on a large number of...I think it's ridiculous to call these people U.S. citizens. These are Canadian citizens—residents.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Can I give you a specific example? The riding I represent actually borders New Brunswick and Maine. We know that prior to September 11, and before that—30 or 40 years ago—people were just moving from place to place, from Maine, to New Brunswick, to that part of Quebec. Now you have people in Quebec, for example, or New Brunswick, who were born in the U.S. but who switched when the change.... Borders were very porous at the time, and there was no real process. Many people in Quebec and in New Brunswick could actually be seen by the United States as U.S. persons, even though they haven't lived there for the last 45 or 50 years.

[John Richardson]

Absolutely they are seen that way, because the U.S. is starting with a definition of citizenship status meaning having been born in the country. But being born in the country has absolutely no meaningful relationship to citizenship as it is understood. Some of these people—I'm not kidding—don't even think they're U.S. citizens.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Mr. Hannah, I'm worried, because if nothing in your records says that these people in Quebec and New Brunswick are U.S. people, the U.S. will actually have that information, and you'll have to give it to them. If you're worried about the money that could be withheld, the 30% that we're talking about, think of the threat: they could actually be telling you to provide this information.

[The Chair, Conservative, James Rajotte]

Okay.

Just a brief response, please.

[Darren Hannah]

Okay. There are two points.

One, under the intergovernmental agreement, we don't provide information to the IRS. We provide it to the Canada Revenue Agency. That's the first point. On the second point, bear in mind that, as I said earlier, this isn't about taxation. The tax liability was already there. The tax liability comes from the U.S. Internal Revenue code. This information is only about the sharing of tax information.

[The Chair, Conservative, James Rajotte]

Merci.

We'll go to Mr. Allen, please.

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

Thank you very much, Mr. Chair.

I want to follow up a bit on Mr. Caron's line of questioning to Mr. Hannah, please.

I represent a New Brunswick riding that's on the border with Maine. I do know a number of people, some of them very close to me, whose families, because of...I won't call it an accident, but they actually had to go across because that's where the local hospital was. The child was born, they were there three days, and they came back to Canada. They had never been in the U.S. from the standpoint of having a U.S. tax identification number. They never had a U.S. passport, never anything.... There's quite a number of them who are in that situation.

Under that basis, and given the comments you made before, Mr. Hannah, what is the likelihood of any of them being picked up in the sweep by the bank?

[Darren Hannah]

Well, unless for some reason they provided U.S. identification at the time they opened their account—and I don't know why they would have done that, or what that would have been—from the financial institution's point of view at that point in time, there's nothing there to suggest that they are U.S. persons.

All of the information they probably provided on the account to open the account is likely Canadian in source. That's usually things like a driver's licence and that sort of thing. It would be highly unlikely, I suspect, that there would be anything there to suggest that they're U.S. persons, and therefore that would be the end of that.

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

Yes, and most of them, like you say, would have Canadian driver's licences and would have always had Canadian addresses, so when they opened the account, I can't imagine—you're right—that they would have ever given that.... That leads me to my next question and the due diligence process.

When you talk about that, my understanding is that the IGA gives the financial institution an option to clear the U.S. indicator, but the implementing legislation, proposed subsection 265(5) of the Income Tax Act, makes it mandatory for the contact to allow them the attempt to clear the indicator. Is that your understanding as well?

[Darren Hannah]

Yes. From a financial institution's point of view, nobody wants to.... Everybody wants to make sure that you give.... If there's an indicator and it's unclear, certainly it's in everyone's interests to go back to the client and ask them, to say that there's an indicator on file and ask them if they are or are not a U.S. person, and if they're not, then to say, “Let's just clear this up right now”. Look, it's in everybody's interests to do that, and certainly that will happen.

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

So as part of your due diligence process, it clearly says that there has to be an evaluation of your low value accounts—

[Darren Hannah]

That's right.

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

—so let's just deal with those ones first.

Once this scan has gone through—and I understand that this is going to be an electronic scan of the accounts looking for any of this U.S. indicia, and if it doesn't show up, it doesn't show up—is there any follow-up due diligence on the low value accounts as long as they are existing accounts? Is there any further follow-up on those in the years to come?

[Darren Hannah]

No, there shouldn't have to be any. That as well was in fact one of the big gains from the work that we had done, because if you went back to the FATCA legislation, in its regulations in the U.S., in its original incarnation, there would in fact have been a renewal process, whereby you would have had to go back to clients. There's none of that in the IGA. No, I don't have to go back to the client, unless the client comes in and presents something that would suggest they've become a U.S. person. That would be it.

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

In your comments and in your speaking notes, you talked about how the vast majority of Canadian bank customers are not U.S. persons, and for them the IGA will have no impact. Then you talk about how the bank “may ask” and “may ask”.... Is the bank likely to ask those kinds of questions to follow up with their existing customer base in searching for U.S. indicia, or is there just such a volume that once you do that scan, that's really technically what you can do?

[Darren Hannah]

Again, the only reason the bank may ask is that there's something in there that would suggest there's an indicator. If there's an indicator, as stipulated in the agreement, then we'll follow up. Other than that, there's no reason to follow up.

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

I'm expecting that there's going to be quite a significant—and we've heard this from some of the banks before today—investment in the technology that's going to be required to actually manage and monitor this type of thing, which would have been in place either way, I'm assuming. So with that case, if you had to go under FATCA and had a one-to-one contract relationship with the IRS, if you will, then I'm assuming that it would have been a much more significant investment on your part than having to specify, along with the exclusions of the registered accounts.

[Darren Hannah]

Absolutely. In addition, you'd also then have to build a withholding system on top of that, which you don't have to do as a consequence of going through the intergovernmental agreement process. So yes, is it expensive? It's always expensive, but this is far better for everyone concerned than the alternative.

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

Thank you very much, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Allen.

We'll go to Mr. Cullen, please.

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

Thank you.

Mr. Hannah, if one of your members doesn't report somebody who turns out to be a U.S. citizen, what's the impact on you?

[Darren Hannah]

I'm sorry?