Written on behalf of Feigenbaum Consulting
Last week we blogged about the sharp increase in the number of financial records of Canadian taxpayers sent by the Canada Revenue Agency (CRA) to the Internal Revenue Service (IRS) under the often-controversial Foreign Account Tax Compliance Act (also known as FATCA).
As uncovered by CBC News, the CRA sent 900,000 records to the IRS in September 2019: up from 700,000 the previous year. Overall, more than 2.5 million records have been provided to the U.S. agency since FATCA’s implementation in 2010.
FATCA Opponents in Canada
As we shared last week, FATCA has been a contentious piece of legislation, and has been the subject of several legal challenges across multiple jurisdictions.
In Canada, FATCA was challenged by two dual Canadian/U.S. citizens who have both lived most of their lives in Canada, but who, by virtue of the legislation, now face tax scrutiny in the U.S.
A Constitutional Challenge
The women in question challenged the constitutionality of several FATCA provisions, arguing, among other things, that:
- the provisions result in the unreasonable seizure of financial information belonging to U.S. residents in Canada, contrary to section 8 of the Canadian Charter of Rights and Freedoms; and that
- the provisions impose a burden on U.S. residents in Canada by virtue of their citizenship or national or ethnic origin contrary to section 15 of the Charter.
The Federal Court of Canada found that FATCA does not violate Canada’s Charter of Rights and Freedoms, noting, among other things, that:
…while the Impugned Provisions allow for the seizure of account information, seizures carried out pursuant to the Impugned Provisions are not unreasonable and thus do not violate section 8 of the Charter…
the principle purpose underlying the Canada‑U.S. IGA and the Impugned Provisions – namely avoiding the consequences of the direct application of FATCA in Canada – is an important one. I have also found that individuals have a limited privacy interest in their banking records, and that the method used to collect this information is minimally intrusive. I have also found that the information that is shared with the IRS is afforded protection under the Canada-U.S. Tax Treaty…[b]alancing all of these considerations has led me to conclude that the seizure of banking information contemplated by the Impugned Provisions is reasonable, and that it does not violate section 8 of the Charter.
and, further, that:
…the Impugned Provisions do not reinforce, perpetuate or exacerbate disadvantage, nor do they violate the norm of substantive equality in subsection 15(1) of the Charter. I am also not persuaded that the Impugned Provisions involve the oppression or unfair dominance of one group by another, or a denial to one group of protections that are basic or necessary for full participation in Canadian society.
Since the issuance of this decision, the two individuals who filed the original challenge have launched an appeal. The women are being supported by the Alliance for the Defence of Canadian Sovereignty (ADCS), a group which has been vocal in running an anti-FATCA campaign.
FATCA Opponents in the E.U.
Similar court challenges to the inter-jurisdictional sharing of banking information have also been launched in the United Kingdom and the European Union.
Earlier this year, The Guardian reported that tens of thousands of British residents who had been born in the U.S. but had lived in the U.K. for most of their lives and had little or no ties to the States were being asked for their American social security numbers and being told that their assets could be frozen if they did not comply.
Anyone born prior to 1986 was never issued an American social security or tax identification number. Most U.S. born individuals living outside of the country were never previously aware that they would be liable for U.S. taxes. even if they had never worked there.
According to European Parliament estimates, there are between 300,000 and 500,000 so-called “accidental Americans” living in the E.U. Many of these individuals now fear tax implications they never realized they had and are seeking to renounce their U.S. citizenship rather than go through a complicated retroactive process of filing taxes to the IRS (although, in order to renounce their citizenship, they will be required to file six years of back taxes).
The Council Requests Clarification and Makes Petition
Now, the Council of the E.U., which is the Union’s main decision-making entity, has joined the ranks of those taking action against FATCA and has reached out to the U.S. Treasury Secretary to obtain clarification on the legislation’s impact on dual U.S./E.U. citizens.
In addition, the Council has:
- asked the U.S. to reduce the fee for renouncing a U.S. citizenship from $2,350 USD; and
- to simplify tax filing requirements.
In September of this year, the IRS announced it would grant a a tax break to certain American expatriates seeking to be rid of their U.S. citizenship. The Council of the EU said it was a “a step in the right direction,” but argued accidental Americans were still confronted with big upfront costs.
Following the recent communications from the Council the IRS provided no comment.
How Can Feigenbaum Law Help?
We will continue to follow developments in this matter and other FATCA related information and will provide updates as they become available.
In the meantime, if you have any questions about this legislation and how it may impact you, contact us to learn more about how we can help.
At Feigenbaum Law, we offer cross-border tax and legal solutions. Our ultimate goal is to create the best tax strategy possible for our clients. We work with you to create a personalized solution that will streamline your compliance requirements and reduce your tax burden. Our focus is complex matters related to tax planning for individuals with high net-worth and whose assets are in multiple jurisdictions.
Contact us to learn how our skilled team can provide you with comfort in knowing that you and your money are in experienced hands. Contact us at firstname.lastname@example.org, or call us at (905) 695-1269 or toll free at (877) 275-4792.