Tag Archives: Tax treaty

Analysis, Canada, Cross-border (Canada/US)

MLI Implementation in Canada

new-york-690868_1920On May 28, 2018, nearly a year after Canada became a signatory to the OECD’s Multilateral Instrument (“MLI”), a notice of ways & means motion has been tabled by the Minister of Finance (Canada) in the House of Commons signalling the Canadian government’s intention to introduce legislation to ratify the MLI.  On June 20, 2018, Bill C-82, which will enact the MLI, received first reading in the House of Commons. The MLI has been signed by 78 countries including Canada.

When the MLI is ratified by Canada and the other signatories, existing bilateral tax treaties may be modified to apply certain agreed to minimum standards  on treaty abuse and improving dispute resolution that were endorsed by participating countries under the OECD /G20 Base Erosion and Profit Shifting (BEPS) Project.

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Analysis, Canada, Cross-border (Canada/US)

Federal Court of Canada dismisses challenge to CRA’s automated data collection and disclosure regime under FATCA

In a summary judgment released on September 16, 2015, the Federal Court of Canada examined and disposed of the non-constitutional arguments in the Hillis and Deegan case[1] generally finding that the automatic data collection and disclosure of taxpayer information to the United States by Canada pursuant to the Canada-U.S. Intergovernmental Agreement (IGA) is not inconsistent with the Canada – U.S. Tax Treaty (Tax Treaty) and does not otherwise violate the taxpayer confidentiality provisions in section 241 of the Income Tax Act (Canada) (ITA).

The plaintiffs had originally filed a claim seeking a declaration that the relevant provisions under the Canada – U.S. Tax Information Exchange Agreement Implementation Act (IGA Implementation Act) which implements the IGA are ultra vires or inoperative because the impugned provisions are unconstitutional or otherwise unjustifiably infringe Charter rights. An amended statement of claim was subsequently filed adding the non-constitutional arguments. The plaintiffs sought a permanent prohibitive injunction preventing the collection and automatic disclosure of taxpayer information to the United States by the CRA. A special sitting of the Court was scheduled so that the issues could be disposed of before taxpayer information was to be automatically sent pursuant to the IGA.

The Canadian government’s position was that the collection of taxpayer information is authorized by the IGA and that disclosure to the United States is not inconsistent with the Tax Treaty or in violation of section 241 of the ITA.

In its decision, the Federal Court endorsed the general reasoning and the legal arguments submitted by the government.

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Analysis, Canada, Cross-border (Canada/US), United Kingdom

Hybrid entity classification following the Anson decision

For many years, both the Canada Revenue Agency (CRA) and Her Majesty’s Revenue and Customs (HMRC) have treated limited liability companies (LLC) formed under Delaware law as hybrid entities, in that a LLC has been “opaque” for the purposes of domestic tax law despite being generally disregarded or treated as a partnership for United States tax purposes.

Hybrid entities, including LLCs, are due to be somewhat of a hot topic next month because, as part of its Base Erosion and Profit Shifting (BEPS) project, the OECD is due to present its recommendations to the G20 Finance Minister in relation to “Action 2: Neutralizing the effects of hybrid mismatch arrangements”. However, over the summer the United Kingdom Supreme Court has stepped into the fray in its decision in Anson v. Commissioners for Her Majesty’s Revenue and Customs ([2015] UKSC 44).

This decision emphasizes that entity classification for international tax purposes is highly dependent on the facts and the governing law applicable to the entity, despite guidance from tax authorities that prefers to apply a “one size fits all” approach.  As discussed below, the Anson decision may create renewed interest and support for taking a tax position that diverges from the traditional opaque characterisation of a US LLC.

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Analysis, Canada, Israel

Foreign bank account in Israel: Last chance for voluntary disclosure

On March 16, 2015, The Bank of Israel issued an anti-tax evasion directive aimed at avoiding Israeli financial institutions being used by foreign taxpayers to move assets and income offshore, out of reach of the tax authorities of their countries of residence. Israel may now obtain bank information on accounts opened by non-residents and it will begin the process of exchanging tax information with other countries, such as Canada, in 2017.

The directive stipulates that Israeli banks must require their foreign clients to provide them with a declaration containing the following information:

  1. the customer’s country of residence for tax purposes;
  2. confirmation from the client that his or her aggregate investments and assets have been reported to the tax authorities of the resident jurisdiction (e.g., Canada) or, alternatively, a declaration to the effect that he or she has initiated a voluntary disclosure procedure in the resident jurisdiction; and
  3. a waiver from the taxpayer pursuant to which Israeli banks would be allowed to provide confidential bank account information to non-Israeli tax authorities

Israel may disclose the identity of their non-resident clients and report the funds held in their accounts to the tax authorities of their respective countries of residence

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Analysis, Canada, Français

Comptes bancaires en Israël et échange automatique d’information

Le 16 mars dernier, la Banque d’Israël a émis une directive ayant pour objet de contrer l’évasion fiscale internationale et d’éviter que les institutions financières israéliennes ne soient utilisées par certains contribuables étrangers afin de réduire indûment leur fardeau fiscal dans leur pays de résidence.

Cette directive prévoit notamment que les banques israéliennes devront obtenir de leurs clients étrangers une déclaration contenant :

  1. Le pays de résidence fiscale du client;
  2. Une attestation du client à l’effet qu’il a déclaré l’ensemble des investissements et avoirs qu’il détient auprès de l’institution financière israélienne visée aux autorités fiscales de son pays de résidence, ou, alternativement, une déclaration du client à l’effet qu’il a entamé un processus de divulgation volontaire dans son pays de résidence; et
  3. Une décharge du contribuable relativement à la confidentialité de ses informations financières vis-à-vis des autorités fiscales de son pays de résidence.

En d’autres termes, les banques israéliennes s’autorisent à communiquer l’information relative à leurs clients étrangers aux autorités fiscales de leur pays de résidence. Continue reading »

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