The United States is enlisting the help of five European governments in its crackdown on offshore tax evasion and says it’s open to the idea of a similar deal with Canada.
The Obama administration issued long-awaited regulations on Wednesday aimed at getting foreign banks and other financial institutions to identify their U.S. customers, while delaying and softening some key measures.
The crackdown has provoked a storm of protest in Canada, home to roughly one million Americans – many of whom could eventually be caught up in the tax sweep.
In response to a barrage of foreign criticism, the U.S. Treasury Department said it is now willing to work directly with foreign governments, rather than financial institutions, to enforce the Foreign Account Tax Compliance Act (or FATCA).
Canada and other countries have complained that the U.S. law might violate privacy laws and encroach on their legal turf.
Germany, Great Britain, France, Italy and Spain issued a statement Wednesday saying they have agreed to set up a “government to government framework.” The governments would collect data and then remit it to U.S. tax authorities, under the terms of existing bilateral tax treaties.
Conspicuously absent from the statement was Canada.
Finance Minister Jim Flaherty said the U.S. announcement “appears to demonstrate an interest in greater joint government collaboration to address such concerns.”
He also said Canada would “continue to work with our American counterparts toward an approach acceptable to both our countries.”
Finance Department spokeswoman Mary Ann Dewey-Plante would not say if Canada is willing to agree to the same terms as the Europeans. “We are continuing to discuss a solution to this situation with the U.S.,” she said. “When we have one, we’ll say more.”
A senior U.S. government official told Reuters the government is “open to exploring a similar arrangement with Canada.”
In a statement, the Treasury department said the offer is not an exemption from FATCA, but provides a way for foreign financial institutions to deal with their own governments.
The Canadian Bankers Association said it’s hopeful the European deal will be made available to Canada.
Also Wednesday, the U.S. Internal Revenue Service said it would delay some key FATCA income reporting requirements by two years to 2016 and raise the account value ceiling (to $1-million U.S. from $500,000) for exhaustive manual checks on suspected U.S. account holders.
IRS commissioner Doug Shulman said the proposed regulations “reflect our commitment to take into account the implementation challenges of affected financial institutions while allowing for a smooth and timely roll-out of the law.”
FATCA still requires foreign financial institutions, including banks, brokers, insurers and mutual fund companies, to identify U.S. customers with accounts valued at more than $50,000. Institutions, and customers, that do not comply would be hit with a 30-per-cent withholding tax on any U.S.-source income and transactions.
That’s a powerful hammer for the big Canadian banks, all of which have U.S. operations.