FATCA injunction dismissed

FATCA injunction dismissed

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

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.

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