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On Dec. 16, 1773, Samuel Adams and his group of patriots, the Sons of Liberty, swept aboard a cargo ship filled with 45 tons of East India Company tea, which they promptly dumped into Boston Harbor. The Americans were rebelling against a three-pence tea tax imposed by the then-ruling British government. Like a Canuck version of Sam Adams, federal Finance Minister Jim Flaherty recently took the highly unusual step of upbraiding his American counterparts in a public letter for the " far-reaching extraterritorial implications" of their onerous tax laws that apply to Canadian taxpayers.

Under these laws, any U.S. citizen, whether living temporarily or permanently in Canada, must annually report on all accounts above $10,000 and file a U.S. return. There are roughly a million U.S. citizens living in Canada, more than anywhere else. If these individuals don't comply, they could be subject to penalties that include 25 per cent of the amount of the undisclosed assets plus repayment of back taxes plus interest penalties plus possible imprisonment.

The U.S. laws apply even though these individuals may have disclosed and paid Canadian tax on all of the relevant income, often at higher rates than U.S. ones. Even King George III would have blushed at the suggestion of such confiscatory tax measures.

And the situation may get worse. The Obama administration promoted new laws that, beginning on Jan. 1, 2013, will force Canadian financial institutions to collect account information about these Canadian-based taxpayers for eventual remittance to the Internal Revenue Service. The Finance Minister correctly pointed out this "would turn Canadian banks into extensions of the IRS and would raise significant privacy concerns for Canadians." The Office of the Privacy Commissioner of Canada has also raised the alarm, since it would permit a foreign government to gather and store detailed financial information about many Canadians.

The Canadian government can take a number of steps to address this situation.

First, it should continue to press the Americans for an exemption for all U.S. citizens who have lawfully paid taxes on their income to Canada, and thus have never taken steps to hide their assets. The Finance Minister neglected to mention the main reason why it makes sense to provide Canada with an exemption. The two countries have already agreed to significant tax information exchanges, including information about cross-border portfolio investment income (interest from a corporate bond, for example), through co-operative measures they don't share with any other countries.

Second, Parliament should table legislation that renders the recent Obama legislation of no force and effect in Canada. Foreign governments should be entitled to a reasonable amount of financial information to help enforce their tax laws, but turning Canadian banks into a branch of the IRS goes too far.

Finally, assuming this matter can't be settled between the two countries, Parliament should pass retaliatory legislation that imposes the same enforcement regime on U.S. financial institutions that deal with Canadian "tax" residents. Under Canadian tax law, these residents, including many Canadians who live in the U.S. and maintain assets and social ties in Canada, must pay tax to Ottawa on their global income.

This final approach will serve two purposes. It will bring to bear lobbying pressure from the U.S. financial industry that won't want to sustain the administrative costs of determining whether they're dealing with a tax resident of Canada.

Perhaps more important, the measure will stir up the hundreds of thousands of Canadians who live in the U.S. –there are almost a million in California alone. That's right: We may need to enlist Mike Myers, Celine Dion, Jim Carrey and other true patriots in a coming war against Yankee imperialistic taxation.

Arthur Cockfield, a law professor at Queen's University, is the editor of Globalization and Its Tax Discontents: Tax Policy and International Investments . He testified about tax evasion and offshore bank accounts in February before Parliament's standing committee on finance.