Does the Canada-United States Tax Convention (the
"Treaty")1 require the Canadian government to
assist the US government in collecting penalties for failure to
file the Foreign Bank Account Report
("FBAR")?2 The Canadian Ministry of National
Revenue thinks not. More importantly, however, on January 23, 2012
the Ministry said that the Internal Revenue Service
("IRS") agrees. The Ministry even said so in a statement
recorded in the Parliamentary Record.
Has the IRS really conceded this issue (ignoring for the moment
the US Constitutional issues)? The short answer is "no."
Both the Canada Revenue Agency ("CRA") and the IRS
informed us that there are no documents, briefing papers, talking
points, or other memoranda that would support the Ministry's
The CRA's argument is based on the fact that the Treaty
applies to taxes imposed under the Canadian Income Tax Act and the
US Internal Revenue Code.3 The Treaty obligates both
Canada and the US to assist one another in the collection of the
taxes, interest, and penalties.4 The obligation to file
the FBAR does not arise under the Internal Revenue Code, but under
the 1970 US Bank Secrecy Act.5 Hence, the argument is
that the FBAR filing obligation is not based upon tax covered by
the Treaty and Canada is therefore not obligated to enforce the
penalties imposed thereon.
Statement in the Parliamentary Record
On January 26, 2012 Mr. Mai, a member of the Canadian
Parliament, posed question Q-412 to several Canadian Ministries,
which was entered into the Parliamentary Record (relevant portion
here). In response, on March 13, 2012 the Ministry of National
Revenue wrote the following (relevant portion
"...The IRS agrees that the Report of Foreign Bank and
Financial Accounts (FBAR) penalties are not covered by the
Canada-United States Income Tax Convention ("the
Treaty"), therefore the CRA will not be collecting on behalf
of the IRS..."
"Access to Information Request" and "Freedom of
Information Act Request"
In order to get to the bottom of the rhetoric our office
immediately contacted both the CRA with an Access to Information
request and the IRS with a Freedom of Information Act request. We
asked for all documents, including briefing papers and talking
points, regarding the Ministry's statement. We recently
received written responses to our requests.
We received the CRA's
response on May 1, 2012. In sum, the CRA's response
indicates that no documents exist to support the statement and that
the Ministry's statement was based on a "verbal response
to a question in a meeting with the Internal Revenue Service in
2011." The CRA does not indicate who made the statement, the
parties present at the meeting, the context in which the statement
was made, or any other details.
We received the IRS's
response on July 18, 2012. The IRS indicates that it could not
find any documents that would support the statement. The response
does not mention any statements made by the IRS that would support
the Ministry's assertion.
Most US tax lawyers would probably agree that the Treaty may not
compel the Canadian government to enforce FBAR penalties, though
the analysis is nuanced and technical. Shortly we will be
publishing an article that provides a detailed analysis of the
1 Convention between Canada and the United States of
America with Respect to Taxes on Income and on Capital, Sept. 26,
1980, US - Can., 1469 U.N.T.S. 189, as amended by the Protocols
signed on June 14, 1983, March 28, 1984, March 17, 1995, July 29,
1997, and September 21, 2007.
2 Form TD F 90-22.1, Report of Foreign Bank and Financial
3 Article II of the Treaty.
4 Article XXVI A of the Treaty.
5 31 U.S.C. 5311.
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