OTTAWA (Reuters) - U.S. Treasury officials are working on a proposal that would make it less onerous for Canadian banks to comply with a new U.S. tax law, Canada’s Finance Minister Jim Flaherty said on Wednesday.
“They’re trying to work on a more reasonable result for the Canadian banking system. We’re not a tax haven in Canada and the American provisions are really designed to get at people hiding money in tax havens,” Flaherty told reporters in Ottawa.
He said he had “further discussions” with U.S. officials about the regulation known as FATCA, or the Foreign Account Tax Compliance Act, and was waiting to hear back from them.
The FATCA provisions include a requirement by overseas banks to report directly to the Internal Revenue Service about their U.S. clients.
“I certainly have the assurance from the secretary of the treasury that the matter is being reviewed, with a view to trying to be accommodative,” he said.
The U.S. Treasury said in October that exemption from the law was not an option. When asked precisely what Ottawa was asking for, Flaherty said: “Some refinement of what information would be required of Canadian financial institutions in order to satisfy the American desire to catch people who are using jurisdictions as tax havens.”
Canada already exchanges tax information with its top trade partner and its banks are unhappy about the prospect of a new layer of bureaucracy and reporting that they say will raise their costs.
In June, the private banking arm of HSBC (HSBA.L) said it would stop offering services to U.S. residents outside the United States because of the cost of complying with the rule.
Some Swiss bankers are advising clients to steer clear of U.S. securities ahead of the FATCA law coming into effect.
FATCA will require overseas banks to report U.S. clients with more than $50,000 in assets to the IRS, or withhold 30 percent of the interest, dividend and investment payments due those clients and send the money to the U.S. tax department.
FATCA also imposes financial reporting requirements on Americans living in Canada, including a large number of American-Canadian dual citizens.
Prompted by growing concern over hefty penalties for late filing of U.S. income tax returns by dual citizens, the IRS released a statement recently suggesting it may be lenient on the issue.
“We are looking at putting out information in the near future about how the current law and rules work with respect to late filed income tax returns and late filed FBARs (report of foreign bank and financial accounts). We believe this will significantly allay concerns,” the IRS statement said.
“We continue to look closely at ways to minimize burden on dual citizens and strike the right balance in administering the U.S. tax laws.”
Reporting By Louise Egan; editing by Rob Wilson