International tax experts are speculating that Canada is not really on board with the controversial Foreign Account Tax Compliance Act (FATCA) despite signing a binding treaty with the United States to stop tax avoidance.
The Canadian government has carried on ‘will they, won’t they’ talks with the US for months over signing up to the law aimed at identifying US taxpayers with hidden cash and investments outside the States.
The government has come under a great deal of pressure from lobbyists, anti-FATCA campaigners and banks not to comply with FATCA.
Meanwhile, the US sees the pact with Canada as a political coup in efforts to make FATCA the basis of a global tax network.
The criticism of Canada’s stance on FATCA comes after tax lawyers suggested the country’s legislation to back signing the inter-governmental agreement falls well short of the demands of the US Treasury.
Disagreement over wording
The argument is over the definition of a ‘financial institution’ by both governments.
Lawyers claim the US idea of a financial institution is wider ranging than that of the Canadian government – and that this could mean some Canadian trusts being left outside of the agreement.
If that was the case, these trusts would have to sign up for FATCA individually if they were controlled by US taxpayers, so that they could report their financial status to the Internal Revenue Service (IRS) in America.
Failing to report the financial affairs of US taxpayers controlling bank accounts or investments with a balance of more than US$50,000 a year could result in sanctions.
While lawyers and protestors in Canada are still trying to stir up opposition against FATCA, other lawyers and tax experts claim they are just troublemakers and that all is well with Canada’s compliance with the new law that starts from July 1.
One Canadian lawyer, Ray Berg, fears that if the Canadian side of the FATCA agreement is too loose, financial institutions will have to pay more to meet compliance.
“Britain realised this early on and drafted its own laws to dovetail with FATCA to make compliance easier for British financial institutions and the tax authority,” he said.
“Not getting this right will not only cost everyone more to put right, but introduces uncertainty into the market.”
Meanwhile, the latest nation to join the ranks of FATCA is Finland, whose government signed an inter-governmental agreement this week.