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Friday, October 14, 2011

U.S./Canada Tax War

For those of you not in the know, the U.S. Government passed a law that would require all foreign banks to report the account information of all account holders with U.S. citizenship-even those who also hold citizenship in their country of residence (dual French/U.S. citizens, for example). All banks everywhere in the world are being told to comply by 2013 or face stiff penalties.

Up until now foreign governments, banks and American citizens abroad have been quietly trying to pursuade the U.S. Government to rethink this. The reporting requirements are quite onerous, banks are not happy about having to ask their clients if they are U.S. citizens, and Americans abroad are starting to become the pariahs of the banking communities in their host countries since the easiest way to avoid the hassle is to close the bank accounts of all Americans at the local bank and wash their hands of the whole business.

Now it seems that the Canadians are firing back. Remember that Canada is a top destination for U.S. emigrants and many Canadian citizens live and work in the U.S.

The first shot was fired by the Canadian Finance Minister who has publicly expressed his concern over the new rules. The second came in the form of an article in a Canadian newspaper by Arthur Cockfield called The Coming Canada-US Tax War.

His proposal is quite simple: if Canadians banks must report on the account information of Americans and duals in Canada then U.S.banks should be required to do the same for all Canadians or duals living in the United States. To be very clear this would mean that U.S. Banks would have to ask for the citizenship information of their U.S. clients and make a report to the Canadian government with the account information of all the Canadian clients they turn up. This would turn the personnel of U.S. banks into citizenship and tax agents of a foreign government - precisely what the U.S. law is requiring. Imagine what would happen if other countries follow suit.

Hard to argue with his logic. The cat is indeed among the pigeons now.

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