Evidence of meeting #35 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was information.
A video is available from Parliament.
Interim Privacy Commissioner, Office of the Privacy Commissioner of Canada
It is of concern to us, yes.
Conservative
The Chair Conservative James Rajotte
Thank you.
Thank you, Mr. Rankin.
We'll go to Mr. Saxton, please.
Conservative
Andrew Saxton Conservative North Vancouver, BC
Thank you, Chair.
Thanks to our witnesses for being here today.
My first question is for Brian Kingston.
Absent an intergovernmental agreement, I understand that obligations for Canadian financial institutions to comply with FATCA would be unilaterally and automatically imposed on them by the U.S. as of July 1, 2014.
Can you please explain what the consequences would be for Canadians and Canadian financial institutions had the IGA not been signed and also any special provisions that Canada was able to obtain in FATCA that other countries do not have?
Senior Associate, Canadian Council of Chief Executives
Thank you for the question.
If an IGA had not been negotiated, the consequences for Canadian financial institutions would have been significant. Financial institutions would have to negotiate individually with the IRS to come into compliance with FATCA. If they did not do so, they could be subject to a 30% withholding tax. The IGA gets around this.
It also is beneficial, given privacy concerns; instead of financial institutions reporting directly to the IRS, they now report to CRA, which then reports to the IRS.
Conservative
Andrew Saxton Conservative North Vancouver, BC
Without an IGA, do you have an idea of what FATCA would have cost Canadian financial institutions and Canadians holding dual citizenship?
Senior Associate, Canadian Council of Chief Executives
I don't have a number for that. There have been various numbers put forward, but we don't actually have a number.
All I do know is that the cost of not doing the intergovernmental agreement would have been significantly higher, because every financial institution would have had to negotiate their own agreement with the IRS. It's safe to say that the cost would have been significantly higher.
Conservative
Andrew Saxton Conservative North Vancouver, BC
Plus, there would have been more accounts that would have been subject to it; none of the registered accounts would have been exempted. As well, you would have had more credit unions subject to it because the smaller credit unions—under $175 million in assets—would not have been exempted. Is that correct?
Senior Associate, Canadian Council of Chief Executives
Yes, exactly. Under the agreement that was negotiated, there are a number of accounts that Canada has negotiated to be exempted. That's also another benefit of the IGA.
Conservative
Andrew Saxton Conservative North Vancouver, BC
Thank you.
My next question is for Darren Hannah.
Mr. Hannah, the IGA negotiated by the late finance minister contains several notable concessions for Canada that were not necessarily granted by the U.S. to other countries. For financial institutions and their clients, the IGA will help by reducing the compliance burden, exempting certain types of accounts, and exempting certain types of financial institutions, such as those credit unions under $175 million in assets. It also satisfies Canadian privacy laws, since it will be subject to a previous agreement that has been in place for a number of years.
Would any of these special provisions contained in the IGA be extended to Canada if the IGA had not been passed prior to July 1?
Acting Vice-President, Policy and Operations, Canadian Bankers Association
Absolutely not. If you don't pass the IGA, you're then subject to FATCA itself. FATCA itself is enormously complex and enormously expensive, and the implications of non-compliance would be astronomical.
Let me throw a couple of numbers at you. Canadian foreign direct investment in the U.S. is right now, total stock, $318 billion, and U.S. source income flowing back to Canada from the U.S. is $42 billion every year. Imagine subjecting that to a 30% withholding tax.
Imagine subjecting the holdings to a 30% withholding tax on the gross proceeds of sales. I could sell something, lose money, and still get taxed on the proceeds of sale.
Conservative
Andrew Saxton Conservative North Vancouver, BC
So in your opinion, the IGA is a significant improvement over FATCA.
Acting Vice-President, Policy and Operations, Canadian Bankers Association
Absolutely.
Conservative
Conservative
Liberal
Scott Brison Liberal Kings—Hants, NS
Mr. Hannah, you've just described FATCA as enormously complex. This IGA is effectively a treaty between two governments. Should something so enormously complex be part of an omnibus bill with a couple of hours of study allocated to it?
Acting Vice-President, Policy and Operations, Canadian Bankers Association
Well, it's interesting. I've heard.... People have raised questions about the timing in all of this, and the process. From my perspective, actually, I view this as a relatively transparent and long process. The U.S. legislation came into place in 2010. The initial set of U.S. guidance came into place in 2010. The subsequent U.S. guidance came into place in 2011. The original model agreement, the original framework upon which the intergovernmental agreement was created—
Liberal
Acting Vice-President, Policy and Operations, Canadian Bankers Association
Right.
Liberal
Scott Brison Liberal Kings—Hants, NS
—is allocated a few hours of committee as part of an omnibus bill, for something you describe as enormously complex.
Mr. Kingston, you've said that the “overwhelming majority” of Canadians aren't affected by this.
Mr. Hannah, you've said that the “vast majority” of Canadians aren't affected by this.
How many Canadians do you estimate will be affected by this? Are you even aware of the number?
Acting Vice-President, Policy and Operations, Canadian Bankers Association
No, I'm not aware of the number. It's not going to be very many.
Acting Vice-President, Policy and Operations, Canadian Bankers Association
Well, be careful. First off, I don't know if there are a million U.S. persons in Canada, but bear in mind, what is being reported—
Liberal
Scott Brison Liberal Kings—Hants, NS
Okay, but I would suggest.... Look, this IGA gets Canadian banks off the hook from reporting. It does not get Canadian citizens who happen to be considered American persons off the hook. That's very important. You used the term “vast majority”.
Mr. Kingston, you used the term “overwhelming majority”.
What about the million Canadians who are affected? That's the concern. None of us disagree with the idea of negotiating an IGA, but the reality is that you can negotiate a better IGA, given our relationship with the Americans.
Mr. Chrétien and Mr. Clinton had a remarkable relationship that enabled them to do deals that were not available to other countries. Mr. Reagan and Mr. Mulroney had an exceptional relationship. In fact, Mr. Reagan wasn't exactly a big environmentalist, but he agreed to an acid rain treaty with Mulroney at that time. Relationships do matter.
We don't quarrel with the idea of having an IGA, but we think there could have been a better IGA had we had stronger relationships in Washington.
Madam Bernier, in an earlier response to Mr. Rankin, you seemed to indicate there may be a concern regarding a potential charter challenge around the privacy issue. I want you to expand on that. Is there a potential charter challenge inherent in this?
