Daniel Therrien, privacy commissioner of Canada, has warned that Canada’s Income Tax Act may be demanding information about people’s private financial affairs above and beyond what has been agreed under the intergovernmental agreement that sets out the terms of Canada’s implementation of the US FATCA legislation.
Therrien’s comments last week are expected to open a new line of attack for the vociferous anti-FATCA movement in Canada, which is comprised largely of American/Canadian dual nationals who resent the financial and reporting obligations the US law places on them.
Canada and the US previously signed a so-called Model 1 Intergovernmental Agreement (IGA), by which the Canada Revenue Agency (CRA) captures information provided by financial institutions on customers identified as US persons under the FATCA definition. This information is then passed on to the US Internal Revenue Service, the tax authority tasked with collecting revenues on behalf of the US government.
However, Therrien warned in a statement before Ottawa’s Parliamentary Standing Committee on Access to Information, Privacy and Ethics on the Transfer of Information to the United States Internal Revenue Service (IRS), that the Income Tax Act has been written in such a way that it poses a potential threat to people’s privacy considerations.
In his statement Therrien said: “While my office acknowledges the need to combat tax evasion, it is important for the enabling legislation to be clear in the obligations it imposes on all reporting entities, including the CRA and organisations that have FATCA reporting obligations, such as financial institutions.
“For example, the IGA states that unless a reporting institution elects otherwise, accounts under certain thresholds (such as deposit accounts under US$50,000) are not required to be reviewed, identified, or reported.
“We note, however, that Part XVIII of the Income Tax Act seems to require reporting on all US reportable accounts, unless the financial institution specifically designates an account to not be a US reportable account.
“A concern is that given the apparent discretionary nature of the threshold exemptions, it may not be clear when accounts under $50,000 will be reported to the CRA.
“My Office has written to the CRA with follow-up questions, including how many accounts under US$50,000 they have received and transferred, clarification on how threshold exemptions are applied, clarification with regard to the level of review the CRA performs on records that are transferred to the IRS, and if the CRA could advise how many records it received related to Canadian persons from the IRS.
“We have also requested clarification as to why the first round of records sent to the IRS were more than originally estimated.”
In his concluding remarks to the committee, Therrien noted that the mandate his office has means that he must point out to Canadian lawmakers that there is a danger of privacy rights being undermined by bilateral agreements, such as those regarding FATCA.
“Protecting the privacy rights of individuals and advising on improving protections under information sharing arrangements are key parts of my mandate,” he stated.
“Given that Parliament has chosen to pass implementing legislation to support FATCA reporting requirements, we continue to strongly recommend that these obligations not be over broadly applied, but appropriately balanced against privacy rights.”
Individuals in Canada affected by FATCA may take some succour from the additional news from Therrien that the Canadian Revenue Agency had had to backtrack from its previous stance on record keeping.
In accordance with Canadian law, the CRA had had to respond to Therrien’s office through a so-called Privacy Impact Assessment (PIA) of its activities. This PIA was received in August 2015, and included a commitment by the CRA to cut the retention period of FATCA related information to seven from 11 years – bringing its FATCA approach in line with standard Canadian tax return data retention policy.
The CRA also acknowledged that it had accepted the privacy comissioner’s recommendation in regards to: educating financial institutions of the risk of over-collection of information, committing to safeguarding information, and updating its PIA to “reflect all proposed uses and disclosures of personal information and ensuring these be strictly limited for purposes of tax administration only.”
According to the US Treasury, there are now 112 IGAs in place between the US and foreign governments. Information available through the US Treasury’s website – https://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA.aspx – shows that the clear majority are of the so-called Model 1 type, under which local tax authorities are responsible for collecting data before passing it on to the US tax agency.
However, it should be noted that a number of IGAs listed are identified as “Agreement in Substance” – as is the case, for example, with such key emerging economies as China and Saudi Arabia. Russia is not on the list at all, nor Albania.
Others that have been “signed” are yet to reach “in force” status, the list also shows.