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FATCA injunction dismissed

|Written By Neil Etienne

Snowbirds flying south and Yanks coming north will have to watch their financial Ps and Qs a little closer.

The Federal Court declined to issue an injunction to prevent the automatic exchange of financial information between Canada and the U.S. (Photo: Shutterstock)
On Sept. 16, the Federal Court of Canada declined to issue an injunction to prevent the automatic exchange of financial information north and south of the 49th parallel through the U.S.-Canada Intergovernmental Agreement and Foreign Account Tax Compliance Act.

Tax lawyer Roy Berg, of Moodys Gartner Tax Law in Calgary, has been keeping close tabs on the case, one brought forth in August 2014 by Vancouver’s Virginia Hillis and Gwendolyn Deegan.

“The plaintiffs’ arguments were innovative and creative, but were apparently not enough to convince the court to issue the injunction,” he said.

“I imagine there is a great feeling of relief within the Canadian banking industry because if the plaintiffs had been successful in enjoining the exchange of information, that would have cast into doubt whether the IGA could be given effect in Canada; and without the IGA, Canadian banks could have been subject to the full weight and force of FATCA, which would have been much worse.”

The plaintiff duo unsuccessfully argued that the FATCA violates the Canadian Charter of Rights and Freedoms and their right to security of person and against unreasonable search and seizure. In a press release about their case, they say they both left the U.S. at age five to live in Canada, never obtained a U.S. passport or developed meaningful ties with the U.S., but are considered “tax cheats” by the U.S. because they are not IRS compliant.

“I am a proud Canadian. Why is my government branding me with being a potential U.S. tax evader merely because of my place of birth — and turning my personal information over to a foreign government’s jurisdiction,” Hillis said in the release.

Berg says the ruling means the transfer of information between Canada and the U.S., currently scheduled for Sept. 23, will proceed as planned unless the plaintiffs are successful in obtaining an interlocutory ruling from the Federal Court of Appeal before that time.

“Given the short amount of time before the information is scheduled to be exchanged, it is unlikely an appeal will be heard and decision rendered,” says Berg.

He added the court did not rule on whether the IGA or the Canadian implementing legislation violates the Constitution or and those issues will be determined in another trial scheduled for late 2016.

He said the ruling means come the 23rd banks will start transferring financial information on about one million U.S. citizens living in the Great White North and those Snowbirds who live part-time in the U.S.

“If the information is exchanged with the U.S. before an appellate decision is rendered, the plaintiffs’ case, at least as it relates to the treaty arguments, will become moot,” Berg added.

“[But] the court noted that even if it did find a violation of the treaty or Canadian law, it questioned whether it had the authority to issue an injunction in the light of the plaintiff’s ability to simply renounce their U.S. citizenship or request relief from either CRA or IRS.”


Update Sept. 30:

Although the expected Sept. 23 transmission of tax information between the U.S. and Canada was delayed, it will go ahead today, Sept. 30.

Information on approximately 155,000 U.S. citizen accounts will be transferred to the IRS, says Berg.

As of Sept. 30, the Federal Court of Appeal had not ruled on a motion to prevent the transfer of information between Canada and the US pursuant to FATCA and the US-Canada IGA. The court was asked to prevent the transfer of information because of a Sept. 16 ruling of the Federal Court that denied the same request, but Berg says the door is now open for that transfer to take place.

  • FATCA versus Sovereignty

    Dr Terry Dwyer
    Two comments - one serious, the other not so serious.

    First, FATCA is only the start. With the Common Reporting Standard and the Multilateral Convention on Mutual Assistance in Tax Matters, Canada and other countries down to the smallest territory are going to be forced to collect taxes for other countries on income generated within their own borders. This is a tax vassaldom worse than anything the UK Parliament tried to impose on the American colonies in the 1760s and is clean contrary to British constitutional traditions, which are entrenched in some Constitutions. Canada is not going to be the only country with constitutional objections to all this. It is high time, source countries just said "No." The first to do so will reap a bonanza.

    Second, maybe the snow birds can fly to Havana?

    Dr Terry Dwyer
    Dwyer Lawyers
    www.dwyerlawyers.com.au
  • This article lacks critical balance and other expert sources

    Canadian Citizen
    Why are factual comments noting omissions and suggesting additional parts of this story not being approved for the edification of your readers?

    FACT: US tax lawyer Roy Berg (who has only been present in Canada since 2011) appeared before Parliament and the Finance Committee, in support of the FATCA IGA. It is a fact that he was present during the recent hearing in BC, and was there in support of the IGA. It is a fact that he has written articles in support of the IGA.

    FACT: there are several very qualified Canadian lawyers and academics like Prof. Arthur Cockfield and Allison Christians who take the opposing view - who have written reports, submissions and articles with robust references to support their criticism of FATCA and the IGA.

    FACT: Canadian constitutional expert and lawyer Peter Hogg sent a submission letter to the Finance Dept. raising Charter and constitutional issues similar to that of the plaintiffs. Why suppress legitimate criticism?
  • Mr/s

    Maple Leaf Forever
    The lack of balance in this article is disturbing. There is no analysis or commentary from law professionals other than the US tax lawyer Berg, who it is well known wrote and appeared in support of the FATCA IGA and the federal government's position - and the federal government is the defendant in this case.

    Objectivity would require citing other legal professionals with opposing views - Canadian and US tax law specialists and academics with substantial credentials, who have made a study of FATCA and published critiques of the IGA.

    The references I would cite are available at SSRN. Also available is the opinion letter of Constitutional expert Peter Hogg - who wrote the Finance Dept. warning of some of the very same constitutional and other issues that the plaintiffs are raising in their main complaint - which has yet to be heard and ajudicated.

    I would hope that you would publish even comments critical of the article and the opinions represented.
  • Mr.

    Canadian Citizen
    Balance is required in this article. The only lawyer quoted is an American tax lawyer who has written appeared in favour of the FATCA IGA. Other Canadian tax law professors and professionals (Arthur Cockfield, Allison Christians) have appeared and made submissions against the FATCA IGA. One, Peter Hogg is considered the pre-eminent Canadian Constitutional law expert. He raised Constitutional and Charter arguments against the FATCA IGA in a letter he wrote to the Finance Department.

    Your article would be more objective and informative if the opinions, articles, correspondence and reports of those Canadian tax and constitutional law specialists were quoted, and their published submissions cited in full. The Privacy Commissioner of Canada commissioned a report on FATCA from Cockfield. The law community would profit from being given the citations to read and consider for themselves. Cockfield and Christians submissions are available in open source fulltext via SSRN.
  • It is an insult to refer to fellow Canadian citizens as 'Yanks' - most of whom were born in Canada or of Canadian parents

    Canadian Citizen
    'Yanks' is an inaccurate unacceptably derogatory way for a Canadian to refer to the >1 million fellow Canadian citizen residents who are only deemed 'US taxable persons' by the US based solely on an accident of a US birthplace or US parentage. Many were born in Canada or of Canadian parents. Neither plaintiff resided in the US after age 5, had no US economic connection/income, never claimed US status, have only Canadian passports, never voted in the US.

    Is Canada a sovereign country or not? Does the Charter & Constitution supercede the extraterritorial aspirations of the US arrogantly asserting a right to extract the data and assets of ordinary Canadian resident families? Should Canada assist a foreign country to tax and plunder RESPs, RDSPs, TFSAs, impose capital gains on the sale of a Canadian family home, etc. and demand data under threat of economic sanction? Harper told Eritrea NO for trying to impose tax on Canadian residents, but rushes to assist the US collect?
  • Mr.

    MICHAEL HARCOURT
    "plaintiff’s ability to simply renounce their U.S. citizenship"

    NO SUCH THING. GET YOUR FACTS RIGHT PLEASE.
  • Say what?

    Tom Alciere
    They could visit a foreign diplomatic mission and comply with its terms. It's like a pimp requiring somebody to pay an extortionate fee for permission to leave a brothel. They charge 2350 USD and require five years of tax compliance. These people are CANADIANS considered under USA law to be USA citizens, but as for USA laws, the boundaries of the United States are the boundaries of the United States. Canadian banks are not required to invest in the USA.
  • Director

    Suzanne Herman
    "The plaintiff duo unsuccessfully argued that the FATCA violates the Canadian Charter of Rights and Freedoms and their right to security of person and against unreasonable search and seizure." WRONG. This summary trial was to determine whether the IGA was allowed under the treaty. The Charter challenge comes later, and contrary to your report, there's no fixed date on this.
  • Treasurer ADCSovereignty

    Patricia Moon
    There has been an interesting development late Friday.The IRS has extended the deadline for Model 1 IGA's already in effect until 2016. Any country wishing an extension must apply. Given the gravity of this situation, it would be extremely questionable for the Canadian government to pass on this information on September 23.
  • Expat

    John Hanson
    One does not simply renounce one's citizenship. $2350 USD or $2900 CDN is not small change. On top of that there is the exit tax. Those that have done well saving for retirement may well be significantly taxed by such Draconian taxes, perhaps on money 100% earned in Canada.

    Citizen-based taxation is morally wrong as it taxes foreign economies, the Canadian economy. This is but one lawsuit of many, but it could end now if President Obama would admit the wrong in this tax and become a fair global trader.

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