Canada seeks US tax law exemption
Friday June 24 2011 | 12:53 AM

Canada will push to be exempted from a US tax law that will force global financial institutions to report US clients to the Internal Revenue Service, according to Jim Flaherty, finance minister.

“My information is that it’s possible to have an exemption,” he told the Financial Times at an interview in New York. Mr Flaherty argued that because Canada and the US already had an agreement to share tax information, the Foreign Account Tax Compliance Act (FATCA) would be “unnecessary red tape”.

“The purpose ... as I understand it is to ensure that there is full disclosure to the US tax authorities by Americans and, quite frankly, that’s not a problem in terms of the Canadian banking system,” he said.

The US Treasury has been on the receiving end of a huge lobbying effort from both foreign governments and non-US banks, all anxious about the provisions of the new law, which goes into effect in 2013 and requires banks to report US clients with more than $50,000 in an account. Manal Corwin, a senior Treasury official, said she was having more meetings on the subject than any other regulatory issue.

Officials have sought to allay some concerns about the scope of the law, clarifying that banks do not have to write to every account holder to determine whether they are Americans and liable for tax, nor do they have to search old paper files.

The US is open to deals with individual countries and is also considering further guidance on Fatca. One concession could include having overseas banks provide the information on customers to their home government, which would pass it on to the IRS.

But officials are determined to get data as well as revenue out of their push and have rejected deals whereby countries provide revenue but keep account details secret.

They also point out that they cannot undo the law passed by Congress even if they wanted to – so blanket exemptions, even to friendly countries, are not possible.

“The goal of Fatca is to stem the tide of offshore tax evasion, which is a goal we should all share,” Ms Corwin said. “We’re talking with foreign governments to figure out how we can implement Fatca in a cooperative way and leverage our existing relationships.”

Mr Flaherty said he had discussed the possibility of exemptions with officials from other countries, “but we’ve not joined forces” to lobby the US. “I’m hopeful that we can look at it in a pragmatic way and that the United States authorities will realise Canada’s not a tax haven”, he said.