Judge Throws Out FATCA Legal Challenge

A long-awaited legal challenge against the US Foreign Account Tax Compliance Act (FATCA) was rejected in the courts.

The Federal Court of Canada rejected an attempt from Virginia Hillis and Gwendolyn Deegan claiming that FATCA infringed the Canadian Charter of Rights and Freedoms and their right to enjoy security of person and unreasonable search and seizure.

Both were born in the USA but left the country with their families to live in Canada at the age of five years old.

“I am Canadian,” said Hillis “I have no US passport and no connections with the country but I am called a tax evader because of the laws in the country where I was born. It’s not right that Canada is passing my personal information to the IRS.”

Nevertheless, under US tax law, they have an obligation to declare their worldwide income to the Internal Revenue Service (IRS).

Option to renounce citizenship

Under FATCA and an agreement signed between the US and Canadian governments, banks and other financial institutions in Canada must report the details of any accounts and investments controlled by US citizens.

As the pair are expats, the report only concerns accounts with balances standing in excess of US$200,000.

The court ruled that even if FATCA flouted Canadian law, the plaintiffs had the option to renounce their US citizenship, which would mean their financial information would not go to the US.

Now the case is settled, the Canadian government intends to start sending financial data to the IRS on September 23. Around a million US expats living in Canada are expected to be impacted by the ruling.

Data exchange

FATCA is an international tax network involving more than 100 countries and almost 175,000 banks and financial institutions.

The law is designed to capture unreported financial information about US taxpayers with offshore assets and bank accounts.

Backed by President Barack Obama, FATCA should raise the US Treasury around $10 billion.

“Had the case been won, the tax agreement between the US and Canada would have been called in to doubt with severe consequences for financial institutions who could have faced hefty fines or been frozen out of the banking system,” said tax lawyer Ray Berg.

“The data exchange will go as planned because there is really no time to appeal and once the exchange has taken place, their argument is lost.”

6 thoughts on “Judge Throws Out FATCA Legal Challenge”

  1. I think a little more precise way to phrase this is that Justice Martineau rejected some technical arguments re: tax treaty provisions made by the plaintiffs’ legal team. The Summary Trial was essentially an attempt to prevent harm being done by the transfer of personal financial data from the Canada Revenue Agency to the IRS (scheduled to begin September 23). However, he allowed the legal challenge to FATCA to proceed “without prejudice” on charter grounds and that is exactly what will happen in 2016. It’s onward to the Supreme Court of Canada for Ginny and Gwen. Meanwhile the IRS announced late last week that IGA signing countries could avail themselves of a one year delay in data transfer but ONLY IF THEY ASK FOR IT before September 30. If the Canadian government does not request this delay we’ll know that it’s because they WANT the data transferred this month, even though it does not need to be. The PM and relevant Ministers have been told about this. The leader of the Green Party, Elizabeth May, even took time out of her busy campaign schedule to write to PM Stephen Harper requesting that he act immediately to stop the data flow.

  2. The article begins with a falsehood and goes downhill from there. The judge absolutely did not reject the legal challenge. He denied the application for an injunction against the Canadian tax authorities releasing information to the IRS prior to the actual trial. He did not put a halt to the trial itself taking place. His arguments against the injunction were technical and have no bearing on the broader lawsuit, which takes place next year.

    The next falsehood is that FATCA “only concerns accounts with balances standing in excess of US$200,000”. Where did the author find this nonsense? The actual figure is US$50,000. But in practice, many banks around the world have stated that they will report ALL accounts held by so-called “US persons” regardless of balance.

    Please, iexpats, if you’re going to publish pieces on such important topics, it’s best to get the facts from somewhere other than your lower bodily orifice.

  3. The real problem with IGA’s is that they deprive a bank of a choice between complying with a foreign law (FATCA) or facing the 30% tax, which would be zero dollars if the bank simply avoids investing in the U.S.A.

    After Ginny and Gwen win in the Supreme Court of Canada, surely somebody will open a small bank that won’t invest in U.S.A. Without FATCA compliance costs, that bank will offer better interest rates and drive the big, international banks out of business. Nobody will invest in U.S.A. The big banks will have no money to lend.

    It has been said that banks need the U.S.A. banking system to process dollar payments, but there are other options. Armoured cars hauling banknotes; USD accounts in other countries. There is no IGA in Zimbabwe and some banks there are not registered with FATCA. They use USD there and the cheques can clear through the central bank, which is exempt from FATCA as a government institution. I’m still waiting to hear from the Bank of the Federated States of Micronesia, member FDIC, which uses USD. USD is also the currency in El Salvador and Ecuador, neither of which has an IGA, both have central banks.

    Besides, why would deals between businesses in other countries have to be priced in USD and not in some other currecny?

  4. Another falsehood to add to the list in previous comments: “The data exchange will go as planned….” There will be no “EXCHANGE”. The US has NOTHING in place nor has legislation been passed to allow for this exchange. Everyone signing these agreements has been hoodwinked. They should not hand over one drop of data until the US is prepared to exchange information.

    These IGAs have been both signed under threat and one side of the signing partners have no intention on delivering on their side of the bargain. Under law these agreements are null and void.

    Also, that 10 billion number the US is suppose to garner from this is over a ten year period. That number too was pulled out of some random orifice. They expect 800 mil/yr, a pittance, while it is costing the world’s banks 1 mil/yr each for the privilege of becoming arms of the IRS for NOTHING in return.

  5. “The case is settled” is WRONG.

    As others have said, this trial was a Summary Trial only dealing with technical Income Tax Act and Income Tax Treaty issues. The challenge under Canada’s constitution and Charter of Rights and Freedoms will proceed.

    In his decision, Justice Martineau said:

    “For all these reasons, the declaratory and injunctive
    relief requested by the plaintiffs in their motion for summary judgment
    shall be denied by the Court, without prejudice to the plaintiffs’ right
    to pursue their claim that the impugned provisions are ultra vires or
    inoperative because they are unconstitutional or otherwise unjustifiably
    infringe Charter rights. There shall be no costs. This is a case where,
    in view of the nature of the issues and the public interest involved in
    clarifying the scope of novel provisions affecting hundreds of
    thousands of Canadian citizens, no costs should be ordered against the
    losing parties.”

  6. The author writes in her profile: “I would love to hear your comments on any article I write, it really does fuel my passion for journalism :)” Unfortunately, her passion for journalism clearly does not extend to its rigorous practice. This is one shoddy article with an even shoddier headline. Others have already thoroughly eviscerated this feeble excuse for a helpful tax-related article, so I need not cover the same ground. However, I would advise anyone who has already read this misleading bird-cage liner to pay attention to the real news in 2016 as the main Charter challenge portion of our anti-FATCA lawsuit is heard in Federal Court.


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