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Canada signs agreement to dull impact of U.S. crackdown on tax cheats
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Barbara Shecter | February 5, 2014 | Last Updated: Feb 5 6:18 PM ET
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Under the terms of the inter-governmental agreement signed Wednesday by federal Finance Minister Jim Flaherty, the Canadian banks will send the information they collect on account holders to the Canada Revenue Agency, which will in turn transmit the information to the U.S. Internal Revenue Service.
Under the terms of the inter-governmental agreement signed Wednesday by federal Finance Minister Jim Flaherty, the Canadian banks will send the information they collect on account holders to the Canada Revenue Agency, which will in turn transmit the information to the U.S. Internal Revenue Service.
Canadian banks will soon begin collecting detailed citizenship and residency information about their clients, some of which will make its way through the Canada Revenue Agency to authorities in the United States as that country cracks down on tax cheats.
_____________________________________________________________
The CRA comes down hard on the small timers — the low hanging fruit — but when it comes to the wealthy, the agency turns a blind eye.
_____________________________________________________________
An intergovernmental agreement between Canada and the U.S., signed on Wednesday in Ottawa, details how Canada and its financial services firms will begin to comply with the U.S. Foreign Account Tax Compliance Act, which comes into force in July.
FATCA is aimed at tracking down the international financial activities of U.S. citizens to make sure they are paying required taxes.
“It is very widespread,” said Russ Crawford, a partner at KPMG in charge of the accounting firm’s U.S. tax practice in Canada, adding that “due diligence” information about individuals and businesses will be collected by the time FATCA is fully rolled out in 2015.
Under the terms of the agreement signed Wednesday, Canadian banks will send some of the information they collect to the Canada Revenue Agency, which will transmit it to the Internal Revenue Service in the United States.
Federal finance Minister Jim Flaherty said the structure of the agreement, which avoids direct involvement of Canadian banks with the U.S. tax authority, addresses some of the concerns Canadian officials have voiced since FATCA legislation was passed in the U.S. in 2010.
“Canada engaged in lengthy negotiations with the U.S. government to address our concerns and, as a result, significant exemptions and other relief were obtained,” Mr. Flaherty said in a statement.
Besides addressing privacy concerns, a senior Finance official said, a provision in the agreement exempts banks from gathering account information on certain types of saving accounts such as RRSPs, Registered Education Savings Plans, and tax-free savings accounts.
That exemption alone has an impact on hundreds of thousands of bank customers, according to Carlene Hornby, co-leader of the FATCA practice at KPMG.
Canada is not a tax haven and Americans do not move here to evade taxation
“Without the intergovernmental agreement, all of those accounts would have to be reported to the U.S.,” she said.
The Investment Industry Association of Canada praised Wednesday’s agreement, noting that there is a “low risk” registered investment vehicles would be used for tax evasion.
But the agreement did not win the same degree of approval from the Canadian Bankers Association, which has been one of FATCA’s fiercest opponents.
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“While we understand that the U.S. government is attempting to address tax evasion, we have opposed how they are going about it with FATCA,” the bankers’ association said in a statement. “Canada is not a tax haven and Americans do not move here to evade taxation.”
The statement said the CBA supports the agreement signed by the Canadian government , but only as the “best approach under the circumstances.”
Intense lobbying by Canada’s banks included sending a contingent of bankers to Washington in 2012 to argue against the complex rules they said raised potential legal and privacy issues between the banks and their clients.
While having the inter-governmental agreement between the countries in place is expected to alleviate some of those concerns, it does little to reduce the costs to the Canadian banks. Bankers have said privately that they are loath to commit millions of dollars of capital to an effort for which there is no bottom-line return – particularly for the benefit of a foreign government.
Toronto-Dominion Bank, Canada’s biggest bank by assets, has estimated the administrative and regulatory costs of collecting the information at $100-million.
The bankers’ group acknowledged that one of the more controversial components of the rules should be circumvented by Wednesday’s information exchange agreement. Without it, Canadian banks and their clients would have faced a threat of a 30% “withholding” tax on all U.S. source income for failure to comply with FATCA.
The agreement signed by Mr. Flaherty and National Revenue Minister Kerry-Lynne Findlay is characterized as an extension of existing tax treaties between Canada and the U.S. However, it will require legislative amendments to come into force, which will provide further details to the banks about how it will be implemented.
The FATCA rules, which apply to all large, non-U.S. financial institutions, were originally supposed to come into force at the end of 2013. But last July, the U.S. Treasury Department and the IRS said there would be a six-month delay.
Countries including France, Germany, Spain, and the United Kingdom have signed intergovernmental agreements.
http://business.financialpost.com/2014/02/05/canada-signs-agreement-to-dull-impact-of-u-s-crackdown-on-tax-cheats/
Republish Reprint
Barbara Shecter | February 5, 2014 | Last Updated: Feb 5 6:18 PM ET
More from Barbara Shecter
Under the terms of the inter-governmental agreement signed Wednesday by federal Finance Minister Jim Flaherty, the Canadian banks will send the information they collect on account holders to the Canada Revenue Agency, which will in turn transmit the information to the U.S. Internal Revenue Service.
Under the terms of the inter-governmental agreement signed Wednesday by federal Finance Minister Jim Flaherty, the Canadian banks will send the information they collect on account holders to the Canada Revenue Agency, which will in turn transmit the information to the U.S. Internal Revenue Service.
Canadian banks will soon begin collecting detailed citizenship and residency information about their clients, some of which will make its way through the Canada Revenue Agency to authorities in the United States as that country cracks down on tax cheats.
_____________________________________________________________
The CRA comes down hard on the small timers — the low hanging fruit — but when it comes to the wealthy, the agency turns a blind eye.
_____________________________________________________________
An intergovernmental agreement between Canada and the U.S., signed on Wednesday in Ottawa, details how Canada and its financial services firms will begin to comply with the U.S. Foreign Account Tax Compliance Act, which comes into force in July.
FATCA is aimed at tracking down the international financial activities of U.S. citizens to make sure they are paying required taxes.
“It is very widespread,” said Russ Crawford, a partner at KPMG in charge of the accounting firm’s U.S. tax practice in Canada, adding that “due diligence” information about individuals and businesses will be collected by the time FATCA is fully rolled out in 2015.
Under the terms of the agreement signed Wednesday, Canadian banks will send some of the information they collect to the Canada Revenue Agency, which will transmit it to the Internal Revenue Service in the United States.
Federal finance Minister Jim Flaherty said the structure of the agreement, which avoids direct involvement of Canadian banks with the U.S. tax authority, addresses some of the concerns Canadian officials have voiced since FATCA legislation was passed in the U.S. in 2010.
“Canada engaged in lengthy negotiations with the U.S. government to address our concerns and, as a result, significant exemptions and other relief were obtained,” Mr. Flaherty said in a statement.
Besides addressing privacy concerns, a senior Finance official said, a provision in the agreement exempts banks from gathering account information on certain types of saving accounts such as RRSPs, Registered Education Savings Plans, and tax-free savings accounts.
That exemption alone has an impact on hundreds of thousands of bank customers, according to Carlene Hornby, co-leader of the FATCA practice at KPMG.
Canada is not a tax haven and Americans do not move here to evade taxation
“Without the intergovernmental agreement, all of those accounts would have to be reported to the U.S.,” she said.
The Investment Industry Association of Canada praised Wednesday’s agreement, noting that there is a “low risk” registered investment vehicles would be used for tax evasion.
But the agreement did not win the same degree of approval from the Canadian Bankers Association, which has been one of FATCA’s fiercest opponents.
Advertisement
“While we understand that the U.S. government is attempting to address tax evasion, we have opposed how they are going about it with FATCA,” the bankers’ association said in a statement. “Canada is not a tax haven and Americans do not move here to evade taxation.”
The statement said the CBA supports the agreement signed by the Canadian government , but only as the “best approach under the circumstances.”
Intense lobbying by Canada’s banks included sending a contingent of bankers to Washington in 2012 to argue against the complex rules they said raised potential legal and privacy issues between the banks and their clients.
While having the inter-governmental agreement between the countries in place is expected to alleviate some of those concerns, it does little to reduce the costs to the Canadian banks. Bankers have said privately that they are loath to commit millions of dollars of capital to an effort for which there is no bottom-line return – particularly for the benefit of a foreign government.
Toronto-Dominion Bank, Canada’s biggest bank by assets, has estimated the administrative and regulatory costs of collecting the information at $100-million.
The bankers’ group acknowledged that one of the more controversial components of the rules should be circumvented by Wednesday’s information exchange agreement. Without it, Canadian banks and their clients would have faced a threat of a 30% “withholding” tax on all U.S. source income for failure to comply with FATCA.
The agreement signed by Mr. Flaherty and National Revenue Minister Kerry-Lynne Findlay is characterized as an extension of existing tax treaties between Canada and the U.S. However, it will require legislative amendments to come into force, which will provide further details to the banks about how it will be implemented.
The FATCA rules, which apply to all large, non-U.S. financial institutions, were originally supposed to come into force at the end of 2013. But last July, the U.S. Treasury Department and the IRS said there would be a six-month delay.
Countries including France, Germany, Spain, and the United Kingdom have signed intergovernmental agreements.
http://business.financialpost.com/2014/02/05/canada-signs-agreement-to-dull-impact-of-u-s-crackdown-on-tax-cheats/
