Entry into Force of the Information Exchange Agreement between Canada and the United States

Par Robert Robillard - 8 juillet 2014

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On July 2, 2014, the Department of Finance of Canada stated:

« The Intergovernmental Agreement (IGA) between Canada and the United States for the enhanced exchange of tax information under the Convention between Canada and the United States with Respect to Taxes on Income and on Capital entered into force on June 27, 2014. The IGA was signed on February 5, 2014. Legislation to implement the IGA, including related amendments to the Income Tax Act, was set out in Part 5 of Bill C-31, which received Royal Assent on June 19, 2014.

The provisions of the IGA generally have effect in Canada as of July 1, 2014. These include the requirements, outlined in Annex I of the IGA, for Canadian financial institutions to institute due diligence procedures to identify accounts held by U.S. persons. In compliance with Article 3 of the IGA, reciprocal information exchange between the Canada Revenue Agency and the U.S. Internal Revenue Service will begin by the end of September 2015. »

This Information Exchange Agreement (IEA) is in line with the FATCA regulations that came into force in the USA.

To read more on that specific item from a Canadian perspective, see the Backgrounder: Intergovernmental Agreement for the Enhanced Exchange of Tax Information under the Canada-U.S. Tax Convention

To see the full IEA, see Agreement Between the Government of the United States of America and the Government of Canada to Improve International Tax Compliance through Enhanced Exchange of Information under the Convention Between the United States of America and Canada with Respect to Taxes on Income and on Capital.

Finance Canada explains:

« The intergovernmental agreement (IGA) signed by Canada and the U.S. on February 5, 2014, will enhance that information exchange and support international efforts to improve the automatic exchange of tax information to increase tax compliance and fight tax evasion.

The IGA is consistent with Canada’s support for the recent G-8 and G-20 commitments to develop a global standard for the automatic exchange of tax information.

The IGA takes into account the objectives and provisions of the U.S. FATCA legislation, while supporting Canada’s objectives for improving the integrity and fairness of the Canadian tax system. The IGA addresses the Canadian concerns about FATCA described above, as well as others.

The IGA between Canada and the U.S. is similar to the ones negotiated with the United Kingdom and several other countries. To date, over 90 countries have either signed an agreement or reached an agreement in substance with the U.S.

Legislation to implement the IGA, including related amendments to the Income Tax Act, was set out in Part 5 of Bill C-31, which received Royal Assent on June 19, 2014. »

Some key features are worth mentioning:

« Reporting and Privacy

Canadian financial institutions will report information on their U.S. clients directly to the Canada Revenue Agency (CRA), which will ensure that the collection and use of the information is consistent with Canadian privacy laws. In addition, exchanged information will be protected by the provisions of the Canada-U.S. Tax Convention.

U.S. Taxes and Penalties

The IGA will not impose any new U.S. taxes or penalties for non-compliance with U.S. tax laws on U.S. persons holding accounts at Canadian financial institutions, or provide for additional assistance in collection beyond that already permitted by the Canada-U.S. Tax Convention. The IGA is strictly an information-sharing agreement.
The IGA also protects Canadians and Canadian financial institutions from the tax withholding provisions in FATCA.

Limits on Reporting

The IGA exempts key Canadian savings vehicles from being reviewed and reported on, including most federally registered accounts such as:
◾Registered Retirement Savings Plans
◾Registered Retirement Income Funds
◾Pooled Registered Pension Plans
◾Registered Pension Plans
◾Tax-Free Savings Accounts
◾Registered Disability Savings Plans
◾Registered Education Savings Plans
◾Deferred Profit Sharing Plans

Smaller deposit-taking institutions, such as credit unions, with assets of less than $175 million will be exempt. »

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Robert Robillard, CPA, CGA, MBA, M.Sc. Econ.
Transfer Pricing Chief Economist, RBRT Inc.
514-742-8086; robert.robillard « at » localhost
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RBRT Inc. is all about transfer pricing. We specialize in transfer pricing. Our services include transfer pricing documentation, transfer pricing dispute resolution, advanced pricing agreement (APA), value chain management and TP planning, transfer pricing training. The information in this blog post is general information only. Data and information come from sources believed to be reliable but complete accuracy cannot be guaranteed. RBRT Inc. and the author are not responsible or liable for any error, omission or inaccuracy in such information. Readers should seek independent tax advice and tax counsel from RBRT Inc. as required.