U.S. tax law poses privacy risk
Ottawa’s
privacy watchdog is examining whether a U.S. campaign to pursue tax
cheats among the roughly one million Americans living here violates
Canadian privacy laws.
Jennifer Stoddart is closely
monitoring privacy concerns as U.S. tax authorities prepare to force all
foreign financial institutions to identify Americans and the money they
have stashed in accounts around the world.
“The
concern is the collection of customers’ personal information and the
transfer to the U.S.,” said Valerie Lawton, a spokeswoman for Ms.
Stoddart, the federal Privacy Commissioner. “We have been following this
issue closely … and have had discussions with a range of industry
stakeholders.”
A Finance department official echoed
the unease, saying the government is worried about potential conflicts
with Canadian laws, including “the protection of privacy and Canadians’
fair access to banking services.”
Among
the potential problems with the American law, slated to come into force
in 2013, is that it would compel Canadian banks, brokers, insurers and
mutual funds to collect U.S. Social Security number and report account
balances directly to the Internal Revenue Service.
Under Canadian law, customers are
only required to provide identification that shows where they live – not
their immigration status or citizenship.
The
law is a source of growing angst in Canada, home to more dual U.S.
citizens than anywhere else in the world. Many of them are worried about
getting caught in the sweep, and may soon face stiff penalties as well
as onerous reporting requirements.
Banks and other financial
institutions complain the U.S. law puts them in an impossible squeeze
between Canadian laws and enormously costly administrative headaches.
Finance
Minister Jim Flaherty said last week he’s seeking an exemption for
Canada, arguing that the country is not a “tax haven” and that Ottawa
already cooperates extensively with tax authorities in the U.S. through a
tax treaty.
But the Obama
administration so far isn’t showing much interest in granting
exemptions. A senior U.S. Treasury official told banking industry
executives recently that it doesn’t want to get into the business of
“picking and choosing” among jurisdictions that must comply with the
law.
Speaking to an American Bankers
Association conference in Miami, Michael Plowgian of the U.S. Treasury’s
Office of International Tax Counsel said bilateral tax treaties are not
a substitute for complying with the new law, known as the Foreign
Account Tax Compliance Act, or FATCA.
Ms.
Stoddart is urging organizations in Canada to work with Industry
Canada, which is responsible for the Privacy Act, and the Finance
department to make sure the U.S. sets “reasonable thresholds for
collection of personal information required to identify U.S. persons.”
Ms. Lawton said that until the U.S.
finalizes and implements the law, the agency isn’t “in a position to
fully assess what the impact will be on the privacy and personal
information of account holders in Canada.”
Canadian
banks in particular have been waging a fierce lobbying campaign to
soften the impact of the crackdown on “low-risk” countries such as
Canada.
In a recent submission to the IRS,
Canadian Bankers Association President Terry Campbell backed Mr.
Flaherty’s pitch for a Canadian exemption, pointing out that it’s
“virtually impossible” for Americans with accounts here to duck U.S.
income taxes, and the Canada-U.S. tax treaty gives the IRS an
“open-ended tool” to pursue cheats.
“There is little likelihood that accounts held by U.S. persons in Canada would be used for tax evasion,” Mr. Campbell argued.
The United States is using the
threat of a 30-per-cent penalty on U.S. income and financial
transactions to force compliance. Most large Canadian banks and
financial institutions have U.S. subsidiaries that could be hit with the
withholding tax if they refuse to identify Americans.
The United States says it’s open to
the idea of exempting certain registered accounts, such as RRSPs and
corporate pensions. But IRS draft rules make no mention of investments
such as Tax-Free Savings Accounts and Registered Education Savings
Plans.
