Law Times

Law Times • sepTember 28, 2015 Page 3 www.lawtimesnews.com Court rejects injunction over new tax rules Decision means new obligations for those crossing the border BY NEIL ETIENNE Law Times S nowbirds f lying south and Americans coming north will have to watch their financial details a little bit more closely. On Sept. 16, the Federal Court declined to is- sue an injunction to prevent the automatic exchange of financial information north and south of the border through the U.S.-Canada intergovernmental agreement and the Foreign Account Tax Compliance Act. Michael Citrome, managing lawyer of Barrett Tax Law in Ottawa, warns that with the act coming into ef- fect, "don't play roulette. Now is the time to voluntarily disclose. "There is already and will be much greater sharing of information between countries. The bottom line is that if you know there's information that is going to be disclosed, this is the opportunity to be proactive," says Citrome. "Once the [Canada Revenue Agency] commences an action, the opportunity to make voluntary disclosure is essentially gone or, at the very least, extremely difficult." Roy Berg, a lawyer and director for U.S. tax law at Moodys Gartner Tax Law LLP in Calgary, has been keeping close tabs on the case, one brought forth in Au- gust 2014 by Vancouver's Virginia Hillis and Gwendolyn Deegan. "The plaintiffs' arguments were innovative and cre- ative but were apparently not enough to convince the court to issue the injunction," he says. "I imagine there is a great feeling of relief within the Canadian banking industry because if the plaintiffs had been successful in enjoining the exchange of informa- tion, that would have cast into doubt whether the [in- tergovernmental agreement] could be given effect in Canada. And without the [agreement], Canadian banks could have been subject to the full weight and force of [the act], which would have been much worse," he adds. The plaintiffs unsuccessfully argued that the act violates the Charter of Rights and Freedoms and their right to security of per- son and against unreasonable search and seizure. In a press release about their case, they said that while they both left the United States at age five to live in Canada and never obtained a U.S. passport or de- veloped meaningful ties to that country, it considers them to be tax cheats. "I am a proud Canadian. Why is my government branding me with being a potential U.S. tax evader merely because of my place of birth — and turning my personal information over to a foreign government's jurisdic- tion?" said Hillis in the release. According to Berg, the court didn't rule on whether the intergovernmental agreement or the Canadian im- plementing legislation violates the Charter as it will de- termine those issues in another trial scheduled for late 2016. He says the ruling means that as of Sept. 23, banks started transferring financial information on about one million U.S. citizens living in Canada as well as Canadi- ans who live part-time in the United States. "[But] the court noted that even if it did find a viola- tion of the treaty or Canadian law, it questioned whether it had the authority to issue an injunction in the light of the plaintiff 's ability to simply re- nounce their U.S. citizenship or request relief from either CRA or [the Internal Revenue Service]," says Berg. In ruling on the issue, the court acknowledged the con- cerns of people such as Hillis and Deegan but said it had no choice. "True, a great number of Ca- nadian taxpayers holding US reportable accounts are likely to be affected by a reporting system that in many quarters is consid- ered unjust, costly and ineffec- tive, considering that at the end of the day they are not likely to owe taxes to the US," wrote Fed- eral Court Justice Luc Martineau. "The plaintiffs may find this deplorable, but apart from a con- stitutional invalidation of the im- pugned provisions or a change of heart by Parliament or Congress, or the governments of Canada or the US, there is nothing that this Court can judicially do today to change the situation," he added. "The impugned provisions have not been held to be ultra vires or inoperative. Judicial courage requires that judges uphold the Rule of Law." Citrome says the act is an example of information- sharing trends that he expects will continue to increase. "I think it stands for the principle that tax filers can't take one position in one country and take a different po- sition in another and then not expect that information to be exchanged," he says. "That's just not the way it's going to work going for- ward." LT NEWS Rejoice. Serengeti lets you take charge and take control of your entire legal landscape. You can organize and analyze everything from documents to deadlines, billing to budgets, pricing to profi tability, all with one surprisingly simple, maintenance-free system. In fact, Serengeti is so easy to use it's almost instinctive. Serengeti also allows you to collaborate, compare and share data more effectively than ever. Used by more than 18,000 in-house counsel and 21,000 law offi ces from international fi rms to solo practitioners, it's not only the most widely used system, it's also the highest rated. Just one more way Thomson Reuters gives you knowledge to act. To learn more, call 1-866-609-5811 or visit serengetilaw.com/canada The number one legal matter management, e-billing and performance analytics system saves you time, money and lots of headaches. Now, that's worth celebrating. 'The plaintiffs' arguments were innovative and creative but were apparently not enough to convince the court to issue the injunction,' says Roy Berg.

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