Canada's FATCA capitulation

As of this past week, the Canada Revenue Agency works for the Internal Revenue Service. The subordination of Canada's tax authority to its American counterpart came in the form of a euphemistically named "Intergovernmental Agreement" pursuant to the US Foreign Accounts Tax Compliance Act (FATCA).

The result is that starting Canada Day (July 1), Canadian banks and other financial institutions will be required to comb through client accounts containing $50,000 or more to determine if they are “US Reportable.”  They must then inform CRA, which will pass the information along to the United States.

ADVERTISEMENT
Notwithstanding that Canada’s leaders have subjected their citizens to the most rapacious and malevolent tax department in the world in the form of the IRS, they have committed a craven surrender of national sovereignty. 

FATCA, passed by the US Congress in 2010, is an extension of America’s anomalous and larcenous practice of demanding taxes from people, regardless of where they reside in the world.  The United States is one of only two countries that engage in this disgraceful practice (Eritrea being the other).

Let us eliminate a deliberate misconception: This agreement is not about catching "tax cheats" as its proponents aver and journalists obediently repeat.

It is about expanding America’s oversight of global commerce, while increasing its ability to confiscate funds to which it has no legitimate claim. 

Indeed, the only apparent cheating is that of the United States, which assumes the power to demand taxes from people who do not live in that country, do not use any of its public services, and in many cases have never been there.

This is international theft, effected by the threat of fines, prosecution and imprisonment.

Most people, including Americans, are unaware of the United States' criminal practice of worldwide taxation. Consequently, when breast-beating yahoos proclaim "America, love it or leave it," they evince ignorance that, as a practical and financial matter, leaving is not an option.

Renouncing US citizenship is no clear solution (although record numbers have done so in recent months), since the American government broadly defines its tax subjects as "US Persons."  This may include people who have studied or worked in the United States, or who have never set foot on American soil yet have family or business associates with roots there.

Why, then, would Canada acquiesce to such an absurd arrangement?

Some might suggest the deal was struck as a political quid pro quo, to convince President Barack Obama to approve the stalled Keystone XL oil pipeline from Alberta to Texas.  But the prevailing politics of the president’s hesitation have always been domestic, rather than international.

After years of studies and reports, Keystone is the most analyzed conveyance in the history of running liquid, and its delay persists to appease the environmental left of Obama's Democratic base, not to force Canada to sell out its own people to the IRS. 

If, after November’s congressional elections, Obama at last approves the pipeline, Canadian politicians might claim credit.  But this would strain credulity.

More likely, Canada caved to America’s overt threat that nations not complying with FATCA would face a 30 percent withholding tax on all US-based investments.  Herein lay a true test of character which, for the moment, Canada’s leaders have failed.

It's easy to be tough with Eritrea, but when the world’s largest economy demands submission to its will and quantifies a sobering sum for non-compliance, real courage is required.

Herewith, therefore, a policy for estimable Canadian leadership: When another country comes along and says their laws will henceforth be your laws, tell them to cram it with maple syrup.

That goes for Eritrea, the United States, and all imperious interlopers in between.

As a dual citizen of Canada and the United States, I appreciate and have benefited from the unique trading relationship of these two countries. But in this case, the United States is being a bully and, like many bullies, needs a smack in the nose.  Canada, meanwhile, needs a leader with the sand to deliver it.

A simple no would suffice. Call America's bluff, if indeed that's what it is. If, however, the US means what it says and really were to begin slapping a 30 percent withholding tax on Canadian investors, Canada should respond by granting an immediate tax credit in that amount to affected individuals and institutions.

This may take a bite out of federal tax receipts, but right is right. If America's largest trading partner were willing to stand up against such preposterous demands, other countries would have the courage and blueprint to do the same.

It also bears mentioning that such a move could make Canada more attractive to international investors. That is, those wanting access to North American markets, yet wary of US tax overreach, would be pleased to see Canada will not go along with it.

Every country has the right to craft and enforce its own laws within its borders.  But when a nation insists that its laws must apply in other countries – as the United States does in this and other instances – that’s a problem.

Through this agreement, Canada has shown the world it lacks the courage to govern itself.  This cannot stand.

Caldwell, an investor and broadcaster, is a dual citizen of Canada and the United States.  He can be contacted at theo@theocaldwell.com

More in Foreign Policy

EU privacy – the next transatlantic 'Microsoft' battle?

Read more »