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Canadian Court Dismisses Anti-FATCA Injunction

by Mike Godfrey, Tax-News.com, Washington

18 September 2015


On September 16, the Federal Court of Canada denied a request for an injunction to prevent the collection and disclosure of Foreign Account Tax Compliance Act information to the United States regarding American citizens living in Canada.

Within the terms of the intergovernmental agreement (IGA) implementing FATCA between Canada and the United States, the Canada Revenue Agency (CRA) will now be able to disclose to the US Internal Revenue Service (IRS) the personal bank account information of US citizens in Canada for 2014. That exchange is expected to take place on September 23, 2015.

The case – Virginia Hillis and Gwendolyn Louise Deegan v. the Attorney General of Canada and the Minister of National Revenue (2015 FC 1082) – was filed by two American-Canadian dual citizens living north of the border, but prepared by the Alliance for the Defense of Canadian Sovereignty (ADCS).

The lawsuit challenged the constitutionality of the country's involvement with FATCA, arguing that the FATCA IGA violates provisions of the Canadian Charter of Rights and Freedoms, which guarantees life, liberty, and security of person; security against unreasonable search and seizure; and equal protection of law without discrimination. The complaint suggested that FATCA goes against the principle "that Canada will not forfeit its sovereignty to a foreign state."

It also alleged that the provisions of the IGA for the automatic collection and disclosure of taxpayer information to the US are contrary to the provisions of the existing Canada-US double taxation agreement (DTA), "as the information is not relevant for carrying out the provisions of the DTA, or the domestic tax laws of Canada or the US."

In addition, it was said, the provisions of the IGA subject US citizens resident in Canada to taxation and requirements that are more burdensome than the taxation and requirements to which Canadian citizens resident in Canada are subjected.

The Federal Court concluded, on the contrary, "that the collection and automatic disclosure of account holder information about US reportable accounts contemplated the IGA is legally authorized in Canada by the provisions of the IGA Implementation Act." Moreover, it found that the collection and automatic disclosure of any such information is not inconsistent with the provisions of the Canada-US DTA.

However, as the Court also declared that its decisions were "without prejudice to the plaintiffs' right to pursue their claim that the impugned provisions are ultra vires or inoperative because they are unconstitutional or otherwise unjustifiably infringe Charter rights," the ACDS subsequently declared that the ruling does mean the end of the case, which it believes will eventually be heard by the Supreme Court of Canada.

In the meantime, however, the CRA will proceed to fulfill the disclosure requirements for Canadian financial institutions (FIs) under the FATCA IGA. Failure by FIs to disclose information on their US clients can result in a requirement to withhold 30 percent tax on payments to them of US-sourced income.

TAGS: individuals | expatriates | compliance | Treaties | Foreign Account Tax Compliance Act (FATCA) | tax | tax compliance | FATCA | Tax Treaties | law | Internal Revenue Service (IRS) | tax authority | withholding tax | Canada | United States | Compliance | Expats | Tax

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