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William Byrnes (Texas A&M) tax & compliance articles

FATCA IGA USA-Canada signed ! (Mauritius, Italy and Hungary announced as well)

Posted by William Byrnes on February 6, 2014

An Intergovernmental Agreement (IGA) between the Government of Canada and the Government of the United States for the enhanced exchange of tax information under the Canada-United States Tax Convention was signed on February 5, 2014, in Ottawa.  See http://www.fin.gc.ca/treaties-conventions/notices/fatca-eng.asp  The IGA will enter into force once Canada has notified the United States that the procedures required by Canadian law for the bringing into force of the IGA have been completed. It is proposed that the IGA have effect as of July 1, 2014.

FATCA has raised a number of concerns in Canada—among both dual Canada-U.S. citizens and Canadian financial institutions. One key concern was that the reporting obligations in respect of accounts in Canada would compel Canadian financial institutions to report information on account holders who are U.S. residents and U.S. citizens (including U.S. citizens who are residents or citizens of Canada) directly to the IRS, thus potentially violating Canadian privacy laws.  Without an agreement in place, obligations to comply with FATCA would have been unilaterally and automatically imposed on Canadian financial institutions and their clients as of July 1, 2014.

Jean Richard, banking expert and contributing author for the Canadian compliance chapter to the LexisNexis® Guide to FATCA Compliance added:  “Canada’s Finance Minister Jim Flaherty stated that the lengthy negotiations resulted in obtaining significant exemptions and other relief.  Do these exemptions and relief, different from those found in the models IGA and other IGA signed, address the Canadian citizens concerns about the extratoriality affect of the US tax system?  According Canada National Revenue Minister, Kerry-Lynne D. Findlay,  

 “This is strictly a tax information-sharing agreement. This agreement will not impose any U.S. taxes or penalties on U.S. citizens or U.S. residents holding accounts in Canada.The CRA does not collect the U.S. tax liability of a Canadian citizen if the individual was a Canadian citizen at the time the liability arose. This includes dual Canada-U.S. citizens. That will not change under this agreement.”

Jean Richard continued: “There is still much Canadian taxpayer concern about how this sensitive issue of risk of double jeopardy for Canadian Citizens who are also US Citizens or Green Card holders is to be dealt with.  Canada is a country that is said to have over one million Canadian citizen who happen to be  also a US Citizen, perhaps by birth or a parent. Canada and the US tax systems are not perfectly aligned, leading to the potential for double taxation.”  

“The double tax agreement has a US-centric feature known as a “savings clause” that subjects US persons to US tax regardless of the applicability of the treaty.  The inevitable result is an increase in the tax compliance and tax filing costs for Canadians that also have US nationality or a Green Card.   These additional costs must be addressed by the respective authorities and then solutions communicated to the general Canadian population.  These costs are in addition to those borne, estimated at about a billion Canadian dollars, by the Canadian financial industry to design and implement FATCA compliant reporting systems.”

Other IGAs including a new corresponding DTA announced by US Treasury 

“FATCA implementation is critical to combating international tax evasion and promoting transparency,” said Deputy Assistant Secretary for International Tax Affairs Robert B. Stack.  “The agreements announced today clearly demonstrate the considerable international support behind FATCA and we are proud to lead the global charge on this pressing issue.”  The U.S. Department of the Treasury recently announced that the United States has signed intergovernmental agreements (IGAs) with Hungary and Mauritius, the latter of which also signed a new tax information exchange agreement.  Treasury reports that the United States has signed 22 IGAs and has 12 agreements in substance to date.  

Joint Statements and Signed Bilateral Agreements

Canada IGA Quick Facts 

  • Under the agreement, financial institutions in Canada will not report any information directly to the IRS. Rather, relevant information on accounts held by U.S. residents and U.S. citizens (including U.S. citizens who are residents or citizens of Canada) will be reported to the Canada Revenue Agency (CRA). The CRA will then exchange the information with the IRS through the existing provisions and safeguards of the Canada-U.S. Tax Convention. This is consistent with Canada’s privacy laws.
  • The IRS will provide the CRA with enhanced and increased information on certain accounts of Canadian residents held at U.S. financial institutions.
  • Significant exemptions and relief have been obtained. For instance, certain accounts are exempt from FATCA and will not be reportable. These include Registered Retirement Savings Plans, Registered Retirement Income Funds, Registered Disability Savings Plans, Tax-Free Savings Accounts, and others. In addition, smaller deposit-taking institutions, such as credit unions, with assets of less than $175 million will be exempt.
  • The 30 percent FATCA withholding tax will not apply to clients of Canadian financial institutions, and can apply to a Canadian financial institution only if the financial institution is in significant and long-term non-compliance with its obligations under the agreement.
  • The agreement is consistent with Canada’s support for recent G-8 and G-20 commitments intended to fight tax evasion globally and to improve tax fairness. In September 2013, G-20 Leaders committed to automatic exchange of tax information as the new global standard and endorsed a proposal by the Organisation for Economic Co-operation and Development to develop a global model for the automatic exchange of tax information. They also signaled an intention to begin exchanging information automatically on tax matters among G-20 members by the end of 2015.
  • Draft legislation to implement the agreement will be released for comment shortly on the Department of Finance website.

FATCA Compliance Program and Manual

book coverFifty contributing authors from the professional and financial industry provide 600 pages of expert analysis within the LexisNexis® Guide to FATCA Compliance (2nd Edition): many perspectives – one voice crafted by the primary author William Byrnes.

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of FATCA’s application for certain trading partners of the U.S. (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems. The 34 chapters include many practical examples to assist a compliance officer contextualize the regulations, IGA provisions, and national rules enacted pursuant to an IGA.  Chapters include by example an in-depth analysis of the categorization of trusts pursuant to the Regulations and IGAs, operational specificity of the mechanisms of information capture, management and exchange by firms and between countries, insights as to the application of FATCA and the IGAs within new BRIC and European country chapters.

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