U.S. Expats Launch Constitutional Challenge Against Canada Over FATCA

by: Smith and Howard

September 22, 2014

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A group representing American expatriates is taking legal action against the Canadian government for implementing the Foreign Account Tax Compliance Act (FATCA), a U.S. law designed to clamp down on tax evasion.

The suit, filed in Canada’s Federal Court (the country’s national trial court), alleges that the Canadian government exceeded its constitutional powers when it signed a Canada-U.S. agreement that forces domestic Canadian banks to comply with FATCA.

U.S. or dual citizenship

The agreement requires Canadian banks to share with the IRS account information about their customers who are U.S. citizens or have dual citizenship. The agreement covers an estimated 1 million individuals and their families.

The legal challenge alleges that the agreement violates the Constitution Act of 1867 and the Canadian Charter of Rights and Freedoms because it:

  • Exposes individuals to potential U.S. criminal penalties without a hearing,
  • Allows private financial information to be seized without a warrant, and

  • Discriminates between those defined as “U.S. persons” and others.

The lawsuit arose despite the fact that the United States had, according to the Canadian Finance Department, already made several concessions to Canada. Among them was exempting Registered Retirement Savings Plans (RRSPs) from the reporting requirement.

The saga hasn’t ended

This case may not be the final chapter of the FATCA narrative. The lawsuit was accompanied by a separate submission of a complaint to the United Nations by citizens worldwide. The complaint charges that the U.S.-style “place of birth taxation,” for which FATCA is an enforcement tool, violates fundamental human rights. Place of birth taxation refers to the United States’ practice of taxing its citizens and permanent residents on their worldwide income regardless of where they reside. 

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