FATCA and the Erosion of
Taxpayer Privacy
Arthur Cockfield
Queen’s University Faculty of Law
art.cockfield@queensu.ca
Pathways to Privacy
University of Toronto, March 19, 2014
Overview of Talk
• Why care about taxpayer privacy
• What is FATCA and the proposed CanadaUnited States intergovernmental agreement
(IGA)
• How FATCA and the IGA erode Canadian
taxpayer privacy
• Can we fix this problem?
Taxpayer Privacy
• Taxpayer personal information is highly sensitive
and includes income, disability status, family
status, charitable donations, asset ownership
• In fact, concerns over intrusive and unfair
taxation led to first laws to bind powers of
English kings (Cockfield and Mayle, 2013, CTLJ):
Coronation Charter of 1100, Magna Carta of
1215, and so on
• Historically no government would assist another
in enforcing its tax liabilities (the ‘revenue rule’)
Foreign Account Tax Compliance Act:
Background
• FATCA derives from U.S. effort to fight offshore
tax evasion (charitable version of history)
• 1990s U.S. Senate hearings on offshore
evasion; more recently 2009 USB Swiss bank
scandal and 2013 ICIJ data dump
• Evidence that offshore banks help hide secret
accounts owned by Americans
• 2010: Congress passes FATCA as part of HIRE
Act
FATCA: How It Works
• All non-U.S. banks must figure out if they have
accounts owned by ‘U.S. persons’
• If banks do not cooperate then punitive ‘withholding
tax’ applies that will effectively shut them down
• U.S. persons include U.S. citizens living abroad, green
card holders (current and former), tax residents
• Non-U.S. banks to send account information directly to
Internal Revenue Service (IRS)
• Then IRS will audit U.S. person: main fear are onerous
penalties, denial of entry into U.S.
How the IGA Works
• Canadian banks cannot transfer personal financial
information directly to IRS
• Canada therefore agrees to enter into
‘intergovernmental agreement’ (IGA) with U.S. on Feb.
5, 2014
• Under IGA, banks send account info on U.S. persons to
the Canada Revenue Agency (CRA) that in turn sends it
to IRS
• Unprecedented for Canada to let a foreign government
unilaterally dictate how Canadian taxpayer information
will be shared across a border (previously cooperate
via treaty since 1942)
Privacy Worries (and there are a lot!)
• Discussed in comments to Dept. of Finance by
Prof. Christians and Cockfield available on SSRN
• IGA indicates that it will trump other Canadian
laws
• Therefore data protections afforded by PIPEDA
likely of no force and effect because banks can
give personal information to CRA for lawful
purposes—trumps consent, notice,
accountability, limited purposes and so on
• Main privacy protections afforded to taxpayers
are limited ones under Canada-U.S. tax treaty
Specific Privacy Concerns
• Breadth of information sharing: affects all
joint account holders with U.S. persons, over 1
million U.S. citizens in Canada, former green
card holders, ‘accidental Americans’,
snowbirds: personal information on hundreds
of thousands of Canadians sent to IRS
• This is unprecedented privacy ‘give-away’ to a
foreign government
More concerns…
• Self-certification procedures will apply to all
Canadians whereby every bank consumer
must certify whether they are a U.S. person (if
they refuse to certify no bank services)
• Social Insurance Numbers transfers
• Corporate confidentiality concerns as
Canadian corporations (if owned by U.S.
persons) must transfer account information to
IRS
The IGA Trumps…
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•
•
•
•
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PIPEDA
Privacy Act
Access to Banking Services Act
NAFTA
Income Tax Act protections
Charter battles on the horizon
Who Are Main Winners
under FATCA and IGA?
• U.S. indicates it will raise few revenues (globally,
it hopes to raise roughly $10 billion over 10 years)
• U.S. economy harmed as it cannot offer ‘credible
commitments’ (Cockfield, VTR, 2013)
• Main winners: tax lawyers, accountants and
bankers (note banks may raise administrative fees
for all bank customers to pay for compliance
costs)
• Therefore U.S. implementing act should have
been named ‘HIRE Lawyers, Accountants and
Bankers Act’
What Can Canada Do?
• Dept. of Finance wants to legislate IGA as of
July 1, 2014
• Now that Canada has signed IGA it is in
compliance with US demands
• Delay legislation to study Charter and taxpayer
privacy issues
• Challenge U.S. action as violation of
international law (e.g., NAFTA, WTO)