Good afternoon. My name is Darren Hannah and I am the Acting Vice-President of Policy and
Operations with the Canadian Bankers Association (CBA). I am very pleased to be here today at
the Committee’s invitation to discuss Bill C-31, and in particular Part V, the Canada-U.S. Enhanced
Tax Information Exchange Agreement Implementation Act, which contains provisions to enact the
intergovernmental agreement with the United States.
The CBA works on behalf of 60 domestic banks, foreign bank subsidiaries and foreign bank
branches operating in Canada and their 275,000 employees.
The CBA strongly supports the government’s decision to enter into the intergovernmental tax
information sharing arrangement with the U.S. because it relieves Canadians of the burden they
would face otherwise due to the U.S. Foreign Account Tax Compliance Act (FATCA). As you know,
FATCA is legislation that was passed in the United States in 2010 and is intended to detect U.S.
persons who are evading U.S. tax using financial accounts held outside the U.S. Under FATCA,
non-U.S. financial institutions would be required to report relevant information to the U.S. tax
authorities about financial accounts held by identified U.S. persons.
The CBA has been very clear on FATCA from the beginning. While we understand that the U.S.
government is attempting to address tax evasion, we have opposed how they are going about it
with FATCA. Canada is not a tax haven and Americans do not move here to evade taxation. We
actively opposed FATCA publicly with appearances before and submissions to U.S government
Unfortunately and despite worldwide efforts by the CBA and others, U.S. officials have no intention
of repealing FATCA and simply ignoring FATCA is not an option. Non-compliance would mean that
both the financial institution and every customer of that financial institution, both in Canada and
around the world, would face a 30 per cent withholding tax on any U.S.-source income and the sale
of any U.S.-source investments, and potentially withholding tax on Canadian source income due to
so-called “foreign pass-through payments” provisions.
This means that any bank customer or retiree that has U.S. mutual funds, stocks or bonds would
have billions of dollars of income lost to the withholding tax, even if they had no other ties to the
For financial institutions, non-compliance would effectively mean they would no longer be able to do
business in the U.S. capital markets or with any institutions that do business in the U.S. capital
markets – which is effectively every major financial institution in the world.
However, the real problem facing U.S. citizens living abroad is not taxpayer information sharing, but
rather the structure of the U.S. tax system. The U.S. is the only country in the world that taxes on
the basis of citizenship rather than residency. If the U.S. switched to a residency-based tax system
then the information of U.S. persons living abroad would not need to be shared with U.S tax
To ensure that Canadians did not face the substantial negative consequences that could have
come with FATCA, on February 5, 2014, the Canadian government announced that it had entered
into an intergovernmental agreement (IGA) with the U.S. government under the existing CanadaU.S.
Tax Convention. The requirements of the IGA are reflected in proposed changes to the
Income Tax Act in Canada under Bill C-31, and financial institutions in Canada will be required to
comply with the changes under Canadian law.
The decision of the Government of Canada to enter into an intergovernmental agreement mirrors
that taken by governments in most other developed countries. Governments around the world have
decided that developing bilateral intergovernmental agreements with the U.S. is the best way to
ensure that the domestic rights of their citizens are respected while still sharing relevant taxpayer
information bilaterally. To date, 30 countries have IGAs with the U.S., including the United
Kingdom, France, Germany, Spain, Italy and Australia; and a further 30 have reached agreements
in principle with the U.S. including Sweden, New Zealand, Brazil, and India.
We have agreed with the federal government that entering into an intergovernmental agreement is
the best approach under the circumstances. We recognize and support the efforts that the
Canadian government has made.
Under the IGA, financial institutions in Canada will report relevant information on accounts of U.S.
persons to the Canada Revenue Agency (CRA) rather than directly to the U.S. Internal Revenue
Service (IRS). The CRA will then exchange the information with the IRS through the provisions in
the existing Canada-U.S. Tax Convention. The 30 per cent FATCA withholding tax will no longer
apply to retail clients of Canadian financial institutions.
In accordance with the IGA requirements, financial institutions in Canada will begin applying their
due diligence procedures starting in July 2014. Information reporting by financial institutions to the
CRA and the exchange of information will begin in 2015.
The IGA requirements will be part of Canadian tax law and all financial institutions will have to abide
by these Canadian laws. Some categories of financial institutions have reduced requirements, such
as small deposit-taking institutions and those that only serve local clients or only issue credit cards.
Very small deposit-taking institutions with assets of less than $175 million may be exempt from
So what does this mean for bank customers in Canada? The vast majority of Canadian bank
customers are not U.S. persons and for them, the IGA will have no impact. Under the IGA, banks
will review their current customer information. If there is no information indicating that an individual
may be a U.S. person, then they will not have to do anything.
If a customer has an existing account and there is an indication that they may be a U.S. person, or
if they are opening a new account, their financial institution may ask them to provide additional
information or documentation to demonstrate that they are not a U.S. person.
However, if they choose not to provide this additional documentation upon request, the financial
institution may be required by Canadian law to report the account information to the CRA.
Under the IGA and Canadian banking law, proof of citizenship is not required to open a bank
account. For the vast majority of Canadians they can open an account with financial institutions as
they always have. However, if there is some indication in a new or existing account that they might
be a U.S. person, then their financial institution may ask them to self-certify that they are or are not
a U.S. person for tax purposes.
While the intergovernmental agreement will place an additional regulatory burden on Canadian
banks, it is simply one part of the new global reality. The G20 has stated publicly that the best
method of addressing tax evasion internationally is through the expanded use of tax information
sharing and they have asked the OECD to develop “a new single global standard for automatic
exchange of information.”
In conclusion, as I’ve said, FATCA is here to stay and ignoring it is not an option. We fully support
the government’s work in putting in place an intergovernmental agreement. I look forward to your
questions. Thank you.