By RITA TRICHUR
Updated Aug. 12, 2014 4:59 p.m. ET
A group representing American expatriates is taking legal action against the Canadian government for its role in implementing a U.S. law designed to clamp down on tax evasion.
The lawsuit, filed Monday in the Federal Court of Canada in Vancouver, challenges the constitutionality of a Canada-U.S. intergovernmental agreement reached in February that forces domestic banks to comply with the U.S. Foreign Account Tax Compliance Act, or Fatca. The agreement requires Canadian banks to share account information about U.S. citizens with the U.S. Internal Revenue Service via Canadian tax authorities.
"My own Canadian government has betrayed me," said Gwendolyn Louise Deegan, 52, a Toronto resident and owner of a graphics-design business who is one of two plaintiffs named in the suit. The suit is funded by the Alliance for the Defence of Canadian Sovereignty and names Canada's attorney general as the defendant.
The plaintiffs allege that the Canada-U.S. intergovernmental agreement violates provisions of the Constitution Act of 1867 and the 1982 Canadian Charter of Rights and Freedoms. The court filing contends that the "collection and disclosure" of information on account holders "engage the privacy and property rights of individual account holders," which are matters of provincial jurisdiction.
The court filing also argues that the intergovernmental agreement creates "a distinction" between dual nationals and other Canadians, which violates a Charter guarantee of equal protection under law.
"The government is confident that the legislation in question [which implements the agrement] is constitutionally valid," said a spokesperson for the Canadian Department of Finance. "The government is prepared to defend the legislation in court."
Neither the U.S. government nor Canadian banks are named in the lawsuit.
Fatca took effect July 1 as part of an effort by Washington to prevent Americans from using foreign-based accounts to dodge U.S. taxes. Unlike other developed nations, the U.S. government taxes citizens on their income from anywhere in the world. In a five-year crackdown, Washington has pursued wealthy taxpayers with assets in countries where bank-secrecy laws fostered attractive tax havens.
The effort has also affected middle-class Americans living overseas. U.S. tax law currently exempts up to about $100,000 of income earned abroad, but Washington has stepped up enforcement of a requirement that Americans report foreign accounts to the U.S. government. Under Fatca, foreign banks and financial institutions are also required to disclose information about U.S. customers.
Amid the crackdown, record numbers of Americans have renounced their citizenship. Canada is home to one of the largest populations of Americans living abroad, with an estimated one million residents holding U.S. citizenship.
Ms. Deegan was born in Washington state but has lived in Canada since the age of five. She has never worked in the U.S., nor has she held a U.S. passport or paid taxes there.
"I consider myself Canadian," Ms. Deegan said in a telephone interview, noting she has been a dual citizen since birth.
In filing the lawsuit, "our intent was to change the law," said alliance chairman Stephen Kish, who is also a dual U.S.-Canadian citizen.
Fatca has cost Canada's five biggest banks a combined sum of about 750 million Canadian dollars ($687 million) in initial compliance expenses, according to people familiar with the matter.
Other countries have signed similar agreements with the U.S. Foreign banks that fail to comply with Fatca face a 30% withholding tax on any payments from U.S. sources to the banks or their account holders.
Last month, a spokesman for Canada's Finance Department, which sets bank regulations, said Canada obtained "a number of concessions" as part of the agreement with the U.S. One key win was the exemption of registered retirement-savings plans, or the Canadian equivalent of the U.S. 401(k).
http://online.wsj.com/articles/expats-in-canada-sue-over-u-s-effort-to-collect-taxes-abroad-1407856738
Updated Aug. 12, 2014 4:59 p.m. ET
A group representing American expatriates is taking legal action against the Canadian government for its role in implementing a U.S. law designed to clamp down on tax evasion.
The lawsuit, filed Monday in the Federal Court of Canada in Vancouver, challenges the constitutionality of a Canada-U.S. intergovernmental agreement reached in February that forces domestic banks to comply with the U.S. Foreign Account Tax Compliance Act, or Fatca. The agreement requires Canadian banks to share account information about U.S. citizens with the U.S. Internal Revenue Service via Canadian tax authorities.
"My own Canadian government has betrayed me," said Gwendolyn Louise Deegan, 52, a Toronto resident and owner of a graphics-design business who is one of two plaintiffs named in the suit. The suit is funded by the Alliance for the Defence of Canadian Sovereignty and names Canada's attorney general as the defendant.
The plaintiffs allege that the Canada-U.S. intergovernmental agreement violates provisions of the Constitution Act of 1867 and the 1982 Canadian Charter of Rights and Freedoms. The court filing contends that the "collection and disclosure" of information on account holders "engage the privacy and property rights of individual account holders," which are matters of provincial jurisdiction.
The court filing also argues that the intergovernmental agreement creates "a distinction" between dual nationals and other Canadians, which violates a Charter guarantee of equal protection under law.
"The government is confident that the legislation in question [which implements the agrement] is constitutionally valid," said a spokesperson for the Canadian Department of Finance. "The government is prepared to defend the legislation in court."
Neither the U.S. government nor Canadian banks are named in the lawsuit.
Fatca took effect July 1 as part of an effort by Washington to prevent Americans from using foreign-based accounts to dodge U.S. taxes. Unlike other developed nations, the U.S. government taxes citizens on their income from anywhere in the world. In a five-year crackdown, Washington has pursued wealthy taxpayers with assets in countries where bank-secrecy laws fostered attractive tax havens.
The effort has also affected middle-class Americans living overseas. U.S. tax law currently exempts up to about $100,000 of income earned abroad, but Washington has stepped up enforcement of a requirement that Americans report foreign accounts to the U.S. government. Under Fatca, foreign banks and financial institutions are also required to disclose information about U.S. customers.
Amid the crackdown, record numbers of Americans have renounced their citizenship. Canada is home to one of the largest populations of Americans living abroad, with an estimated one million residents holding U.S. citizenship.
Ms. Deegan was born in Washington state but has lived in Canada since the age of five. She has never worked in the U.S., nor has she held a U.S. passport or paid taxes there.
"I consider myself Canadian," Ms. Deegan said in a telephone interview, noting she has been a dual citizen since birth.
In filing the lawsuit, "our intent was to change the law," said alliance chairman Stephen Kish, who is also a dual U.S.-Canadian citizen.
Fatca has cost Canada's five biggest banks a combined sum of about 750 million Canadian dollars ($687 million) in initial compliance expenses, according to people familiar with the matter.
Other countries have signed similar agreements with the U.S. Foreign banks that fail to comply with Fatca face a 30% withholding tax on any payments from U.S. sources to the banks or their account holders.
Last month, a spokesman for Canada's Finance Department, which sets bank regulations, said Canada obtained "a number of concessions" as part of the agreement with the U.S. One key win was the exemption of registered retirement-savings plans, or the Canadian equivalent of the U.S. 401(k).
http://online.wsj.com/articles/expats-in-canada-sue-over-u-s-effort-to-collect-taxes-abroad-1407856738
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