It’s meant to be a law that finds the offshore assets of US taxpayers but the legislation has caused a storm in Canada where one party is trying to put a stop to the new legislation.
The country’s Green Party is urging the Canadian government to resist the demands of the Foreign Account Tax Compliance Act (FATCA) which would compel Canadian financial institutions to hand over the account details of any American customers.
Increasing numbers of countries are signing up to the law, mainly via an intergovernmental agreement (IGA) which would help protect their institutions from breaking their own laws, such as privacy and data protection, in order to comply.
Canada revealed in November that it too was negotiating an IGA with the US.
FATCA brings a heavy burden for the institution which doesn’t comply because the US will impose a 30% withholding tax on all transactions between it and the institution involved.
Now the Green Party of Canada is calling for FATCA to be resisted as the law undermines a person’s right to privacy and brings substantial costs for an institution fulfilling legal obligations.
They add that FATCA doesn’t benefit Canadians ‘in any way’ though the countries signing IGAs with the US are exchanging information on their taxpayers with assets in America.
However, the big fear for the Green Party is the definition in the act of what a ‘US person’ is.
A spokesman said: “Under the law, we will see people who are Canadian citizens being classed as US persons because they happened to be born in the USA or have a parent who is a US citizen.
“There’s also an issue with what is being termed as US ‘indicia’ which will see Canadians with an American spouse who have their assets in joint names seeing their details being handed over.
“Then there are the large number of Canadians who have lived and worked in the US and been given a social security number who will also see their details handed over.”
A recent demand from the US which required Canadians working in America to file all details of their financial accounts in Canada with their US tax returns caused an upset, since the information is considered a ‘foreign trust’ under US law and had no legal right to be revealed.
FATCA will come into effect in January 2014, and aside from the IGAs which are being hurriedly discussed, many institutions will rack up large bills in organising their data to find potential US taxpayers.
Though many will find that it will be easier, and cheaper, to comply with FATCA but not having any US account holders.