Appeal predicted, as Canada FATCA trial ends, 'no matter who wins'

The five-day trial took place at a federal courthouse in Vancouver, British Columbia, and as reported, was the first such trial ever to be broadcast live via a “webcast,” which the ADCS noted was a measure of its perceived significance. 

During the trial, lawyers representing the ADCS presented the organization’s reasons for claiming that the intergovernmental agreement between Canada and the U.S. – which dictates how Canada provides information to the U.S. on the bank accounts held there by Canadian citizens whom the U.S. deems to be "U.S. persons" even though they themselves do not, is unconstitutional under Canadian law. 

A team of Canadian government lawyers argued that the Canadian government had made a reasonable and completely lawful decision to comply with the IGA, which was one of more than a hundred that the U.S. agreed with countries around the world in order to enforce its anti-tax evasion law, the Foreign Account Tax Compliance Act. 

In part the Canadian government lawers argued that FATCA is functionally the same as the Organization for Co-operation and Development's Common Reporting Standard (CRS), a more recent tax evasion law similar to FATCA that has been agreed to by Canada and more than 100 other countries. The U.S., however, has not signed up to the CRS, saying that it doesn't need to because it already has FATCA. 

FATCA was introduced in 2010 to ensure that American citizens around the world – including those resident in the U.S. as well as American expatriates around the world and even dual nationals resident in foreign countries (such as Canada) – reported to the Internal Revenue Service each year on any assets they held in foreign banks and other financial institutions outside the U.S.

An earlier attempt at finding FATCA unconstitutional in the U.S. failed, when the U.S. Supreme Court last year declined to hear a challenge to a lower court decision handed down the previous year, which  found that a group of American expatriates lacked the standing to challenge the law, and that the harms they claimed to have suffered as a result of the law were not, in fact, directly caused by it.

Last week’s trial was the latest development in a battle by the ADCS that dates back to 2014, when the organization brought its first lawsuit in the matter, on behalf of plaintiffs “Ginny and Gwen,” who were described as “Canadian citizens born in the U.S., who left at age 5 to live in Canada,” neither of whom had “ever held a U.S. passport or developed any meaningful relationship with the U.S.”

The plaintiffs lost their first FATCA challenge, after the court determined that the FATCA IGA was allowed under the existing tax treaty.

The latest effort takes a different approach, which argues that Canada’s FATCA IGA with the U.S. violates key sections of Canada's Charter of Rights and Freedoms, which protects Canadians from violations of their right to life, liberty and security, unreasonable search and seizure, and similar freedoms. (A photograph of a framed copy of the charter, which hangs in the courthouse in which last week's trial took place, is pictured below.) 

 The plaintiff known as Ginny has since dropped out, so the co-plaintiff of "Gwen" (Gwendolyn Louise Deegan) last week was Kazia Highton. The defendants in the matter are named as the Attorney General of Canada and the Minister of National Revenue.

ADCS: ‘Strong case’ made

In a statement after the trial ended, ADCS co-chairman Stephen Kish, who is a Toronto academic by profession, said the organization’s legal team had made “a very strong case that Canada is expected to stand up for its citizens, and not give away our Charter rights for economic reasons, or deny us the protection of Canada’s sovereignty.”

He noted that the government had argued that it had no choice but to agree to comply with the IGA with the U.S., as unspecified financial repercussions might have been brought to bear if it didn’t – and could still follow “should our plaintiffs win the case.”

During the trial, an economist testified on behalf of the Canadian government that Canadian banks could lose a significant share of their value, and damage to the Canadian economy, might occur if Canada didn’t go along with the IGA.

Kish said he nevertheless felt "that a win in our lawsuit will lead either to the death of FATCA, or else a significant re-negotiation of FATCA agreements in Canada and elsewhere, that will protect the right of Canadian citizens."

As reported, there have been reports of mounting frustration in a number of countries over the fact that the U.S. expects other countries to help it to enforce FATCA, even though the U.S. has declined to participate in the OECD's Common Reporting Standard, which, as noted above, is a similar, global automatic information reporting program.

The reason for these countries' frustration is understood to be due to the fact that the U.S. doesn't "reciporocate" with other countries that provide it with information about its taxpayers' non-U.S. financial accounts by providing them with the same data about their own citizens' U.S. accounts.  

The Organisation for Economic Co-operation and Development created the CRS – which borrows heavily from FATCA, down to its wording, according to experts familiar with both – for the same reason the U.S. introduced FATCA, which is to say that it wanted to tackle offshore tax evasion by making it impossible to hide assets overseas.

ADCS lawyer: 'FATCA and CRS not the same'

The ADCS's general legal counsel, Toronto lawyer John Richardson, said it was a mistake to argue that FATCA and the Common Reporting Standard were "equivalent, or even similar."

"Under FATCA, Canada is transferring information from Canada – a country where [the people whose data is being transferred] actually live – to the United States, a country, where they do not live," he explained.

"Under the CRS, Canada is transferring [bank account information] from a country where people do not live to a country where they do reside.

"The reason it matters is simple: The United States is using FATCA to effectively impose U.S. taxation on the Canadian income earned by Canadians in Canada. 

"To put it another way, Canada's lawyers spent five days in Vancouver arguing that Canada should have the right to impose the full force of U.S. taxation, including penalty-laden reporting requirements, on Canadian residents.

"What a joke."

Canadian government officials didn't respond to a request for comment. 

Details for accessing last week’s trial, along with daily updates on its highlights, were posted on the Isaac Brock Society website  (www.IsaacBrockSociety.ca), a blog read and contributed to by American/Canadian dual citizens who oppose the taxation by the U.S. government of American expats resident in Canada.

'1.6 million Canadian banking
records shared with IRS'

Last month the Canadian Broadcasting Corp.'s CBC News division reported  that the Canadian government had thus far "shared more than 1.6 million Canadian banking records with the U.S. Internal Revenue Service" since Canada agreed to help the U.S. to monitor the Canadian accounts of its Canada-resident citizens, as part of FATCA.