Apr 13th, 2022
Jan 17th, 2014
In March 2010, the United States passed the Foreign Account Tax Compliance Act (FATCA) which requires foreign banks to report certain information on foreign accounts held by U.S. taxpayers to the IRS. In order to reduce the compliance burden on individual banks, the U.S. is negotiating bilateral intergovernmental agreements (IGAs) with various countries whereby the local tax authorities will assume responsibility for collecting and aggregating the relevant information from banks in those countries and report it automatically to the IRS. So far, IGAs have been signed by countries including Switzerland, Bermuda, the Cayman Islands, Jersey and Guernsey, while IGAs remain under negotiation with Israel, Bahamas, Luxembourg, Liechtenstein, Hong Kong and the British Virgin Islands. FATCA will come into effect on July 1, 2014.
So, why should you care about this if you’re not a U.S. taxpayer? For good reason. The U.S. Department of the Treasury recently posted a note on its website which states: “We expect that many, if not most, of the governments implementing FATCA through IGAs will require their financial institutions to identify and report on all non-resident account holders, not just U.S. account holders.”
Normally, Canada can only obtain information under a tax information exchange agreement (TIEA) or tax treaty by submitting a request to a foreign tax authority seeking information pertaining to a specific Canadian taxpayer (i.e. no fishing expeditions), and then the foreign tax authority must obtain that information from the particular bank. However, now that this information will be prepared and transmitted to the foreign tax authorities as part of the FATCA compliance exercise, the door is open for Canada to negotiate its own network of IGAs with a view to obtaining the information automatically. This risk is not simply theoretical: the Israeli tax authority, for example, recently announced its plans to disclose information regarding foreign account holders in Israel to other tax authorities in exchange for reciprocal information regarding Israelis.
Steven Sitcoff is a tax lawyer at Spiegel Sohmer who has experience with a variety of corporate and personal income tax matters, including voluntary disclosures to the federal and provincial tax authorities.