Monday, April 13, 2015

Upcoming event on Delivering Tax Benefits through the Tax System

On April 24, the American Tax Policy Institute is live-streaming an all-day conference "Delivering Benefits to Low-Income Taxpayers through the Tax System."  The conference is organized by Les Book, Villanova University School of Law and Deena Ackerman, U.S. Department of Treasury.  

You can view the program and also register to attend the conference in person here.  


Beginning at 8:45 a.m. (EST) on April 24, you can view the livestream conference webcast

I will be presenting on panel 4, "The International Approach to Delivering Benefits Through the Tax System." 

One focus of this panel is a comparative approach to the delivery of benefits (US/UK/Australia), but I plan to focus on the international implications of the US approach to delivering benefits through the tax code from the perspective of a specific group of “end users” whose financial situations would make them eligible for benefits delivery but who are nevertheless systematically denied these benefits. 

This group is the globally dispersed population of “US persons” who are deemed to be permanently resident in the United States for tax compliance and financial reporting purposes but are not so deemed for purposes of benefits delivered through the tax code, notably, the earned income tax credit. 

The premise I am studying: The inclusion of all US persons in the tax base regardless of domicile, juxtaposed with the blanket denial of eligibility for income support based solely on domicile, reveals the manifest injustice of citizenship-based taxation. I'll examine three inter-related rights-based claims in support of this premise. First, dispersed geographically and without a unified voice in Congress, the diaspora is inevitably denied effective civil and political rights in the design of the US tax system. Second, subject to the most complex aspects of the U.S. tax code regardless of any activity in the United States, and facing extraordinary compliance costs and disclosure risks even for nil returns, this group is effectively denied the administrative rights articulated in the taxpayer bill of rights. Finally, this group is systematically denied income support accorded to similarly situated taxpayers, in contravention of any normative policy. 

These are ideas in progress, so I really look forward to having the opportunity to work through them a little further by participating in this event.




Thursday, April 2, 2015

Kadet on Transfer pricing vs Formulary Apportionment: How About the Profit Split Method?

Jeff Kadet has a new article at Tax Analysts [gated] entitled Expansion of the Profit-Split Method: The Wave of the Future, in which he discusses the so-called transactional profit split method of transfer pricing, which could be quite a lot more like formulary apportionment than it is like transfer pricing. Recall that the OECD really does not want countries to switch to formulary apportionment, even if that might end up being more effective at producing revenue at less administrative cost. But the profit split method might offer a way out, with a little tweaking. Here is the abstract:
Recognizing the reality that multinational corporations are centrally managed and not groups of entities that operate independently of one another, the OECD base erosion and profit-shifting project is considering expanded use of the profit-split method. This article provides background on why expanded use of the profit-split method is sorely needed. In particular, resource-constrained tax authorities in many countries are unable to administer or intelligently analyze and contest transfer pricing results presented by multinational groups. Most importantly, this article suggests a simplified profit-split approach using set concrete and objective allocation keys for commonly used business models that should be welcomed by multinational groups and tax authorities alike.
And here are a few excerpts:
December 2014 saw the OECD issuing several base erosion and profit-shifting discussion drafts, one of which was titled "BEPS Action 10: Discussion Draft on the Use of Profit Splits in the Context of Global Value Chains" .... 
Despite all the continuing rhetoric about how arm's-length pricing and the separate entity principle are sacrosanct, there are compelling reasons why the OECD BEPS project has focused on the possible expanded use of the profit-split method, a method that clearly flies in the face of these icons. ... 
[A] combination of factors has strongly motivated the highly successful tax structures that have significantly lowered the effective tax rates of multinational corporations (MNCs) and eroded the tax bases of many countries. The existence of these factors means that some of the transfer pricing methods are a part of the problem; they are not a part of a solution. These factors include ... [t]he Separate Entity Principle ... Fragmentation ... Respect of Related-Party Contracts ... The Arm's-Length Standard... the Inability to Effectively Audit MNC Transfer Pricing ... [and other issues].
...Paragraph 2.108 of the OECD transfer pricing guidelines gives a concise statement of what the profit-split method is. It states:

The transactional profit split method seeks to eliminate the effect on profits of special conditions made or imposed in a controlled transaction (or in controlled transactions that are appropriate to aggregate . . .) by determining the division of profits that independent enterprises would have expected to realize from engaging in the transaction or transactions. The transactional profit split method first identifies the profits to be split for the associated enterprises from the controlled transactions in which the associated enterprises are engaged (the "combined profits"). . . . It then splits those combined profits between the associated enterprises on an economically valid basis that approximates the division of profits that would have been anticipated and reflected in an agreement made at arm's length. 
Additional guidance in the existing guidelines (paragraphs 2.132ff) makes clear that the criteria or allocation keys on which the combined profits are split should be "independent of transfer pricing policy formulation." Hence, these criteria and allocation keys "should be based on objective data (e.g. sales to independent parties), not on data relating to the remuneration of controlled transactions (e.g. sales to associated enterprises)." Paragraph 2.135 makes this objective basis clear by stating: 
In practice, allocation keys based on assets/capital (operating assets, fixed assets, intangible assets, capital employed) or costs (relative spending and/or investment in key areas such as research and development, engineering, marketing) are often used. Other allocation keys based for instance on incremental sales, headcounts (number of individuals involved in the key functions that generate value to the transaction), time spent by a certain group of employees if there is a strong correlation between the time spent and the creation of the combined profits, number of servers, data storage, floor area of retail points, etc. may be appropriate depending on the facts and circumstances of the transactions. 
Further discussion in the guidelines provides various approaches to splitting the combined profits among the relevant group members. While these approaches are not detailed here, the point is that the approaches that were set out and discussed require a facts and circumstances case-by-case analysis before they can be implemented.
Kadet suggests that this facts & circumstances approach should be shelved in favour of developing a detailed set of objective allocation keys tailored specific types of business, and that for these businesses, the profit split method ought to be presumptive.  In other words, profit split is another word for apportionment; some types of businesses are so integrated that apportionment is the best way to allocate profits to the right jurisdiction; what is needed is a formulaic approach that tax administrations can administer. He notes:
The application of such rules should result in a reduction in complex BEPS-motivated structures since all combined profits will be spread among the group members that actually conduct activities with little or none left within low-taxed group members that do not conduct economic activity and thereby contribute little if anything to value creation. In sum, a simplified and standardized approach for each common business model will provide significant benefits as well as give results that are fair to MNCs and all relevant governments.
 He then goes on to provide a couple of examples taken from the DD10, one involving an internet service provider and the other featuring a manufacturer of R&D-intensive products. In the former, allocation keys include location of customers and workers; in the latter, they include location of customers and key workers (weighted at 25% each) and location of manufacturing operations (weighted at 50%). This is a fairly detailed discussion and well worth reading in full. I'll be interested to see how this idea develops.

Friday, March 6, 2015

Hockey and Tax

Hockey and taxes don't go together that often in the news (except in Australia, where they are one and the same right now), but it's hard to resist posting when they do:

NHL: 4 stories from Thursday night
It was another tough night for fans in Toronto, where the Leafs lost, (shocking I know), to the Lightning 4-2 with goals from four different Tampa Bay players and two assists from Steve Stamkos.   
The game can pretty much be summed up by the opening goal, where the Lightning's Nikita Kucherov was left so wide open, he had time to file his taxes before sniping a top-shelf goal past goalie Jonathan Bernier.
ouch. that's a lot of time. Sorry Leafs!

Thursday, March 5, 2015

Should Corporate Tax Returns be Public?

Last year, I participated in a symposium at NYU on the topic of tax and corporate social responsibility, on a panel with the above title. The NYU Journal of Law and Business has published the symposium issue, including a transcript of the discussions. You can view the entire symposium issue here,. Below I excerpt from my contribution but the entire exchange is worth a read.
... I think the story Josh is telling is that using transparency as a means to generate the political will for corporate tax reform poses some risk, real risk, to the tax system administration. I think we'll have some discussion about how genuine that risk is and how it should be measured against other risks, like firm competitiveness and proprietary information and so on. But I'll leave that discussion aside for now to focus on the first part of the proposition, and that is that what we're trying to do with corporate tax transparency is generate the political will for reform. 
Now I should preface this by saying that I am by nature and profession a curious type of person, and I would love nothing more than to be able to pore over the 57,000 pages of some corporation's tax return ... I think if you've read some of my prior work on the subject, you will no doubt be unsurprised to hear me say let's raise the curtain and have a look. Let's call it an issue of accountability and governance, and let's keep lawmakers on their toes by letting folks at this data that lawmakers are so jealously gardening for their own reasons. We humans don't seem to have too much privacy from the government, so let's us get to the business of crowdsourcing, the monitoring of the artificial people among us. 
But I keep coming back to the problem of what are we trying to solve here. If the goal is to generate political will for change, then I'm actually not so optimistic that corporate tax return disclosures is going to get us there. Instead I think it will lead us to continue having interesting discussions about whether or not we should be taxing corporations at all, or the variation that we had earlier today, which is how to draw the line between avoidance and evasion. 
That's to say we've already been taught, even without corporate tax disclosure, to expect that most American companies, especially those with a global footprint, aren't paying much tax anywhere. The jig is already up. This is not a secret. We're not rioting in the streets about it for the most part. Sure, corporate tax disclosure will confirm what we already know, but I'm not sure if getting all the gory details is going to push the political picture that much further. Maybe it will, because we clearly have an "Overton Window" in which really taxing American corporations is not thinkable. And maybe widespread naming and shaming, or just naming, will move that window. I think it's also possible that the sheer enormity of everything that you're going to see laid bare is going to very quickly lead to resignation and more handwringing, and not so quickly to actual reform. 
But if we're already at that stage now, we already have the stories - we already know the story. If we're already there, then we don't have to wait for corporate tax disclosure, do we? We can already accept the notion that if we're going to collect more from any taxpayer, corporate or not, what we need is not more public information, but more withholding and more third-party reporting. 
So let's see if I can unpack that a bit because I know that's to say a lot. I think it's worth noting that for the vast majority of people, it is not the case that the income tax system is voluntary. And why is that not the case? It is because for that vast majority, every dollar they earn is reported to the IRS by someone else. And most of these dollars are also subject to withholding, and so you have to work some to get any of it back at the end of the year. And if you are an employee, you won't get much opportunity in terms of base erosion at all; you're basically paying a gross receipts tax. We have made wage earners easy to tax with withholding and third-party reporting. And more or less, gross basis taxation with a few exceptions. 
But corporations are different. They are really hard to tax, especially when they are crossing borders. We give them lots of opportunities to carve away their gross and get to a very small net. Withholding and third-party reporting and filing for refunds is generally not the way we get corporations to pay tax. For them, as Reuven said earlier today, the income tax system really is voluntary, and lawmakers have given them a lot of discretion. Transfer pricing is just one very prominent example of this. 
... maybe disclosure is a way to have more informed public debate about the income tax system. But if we're having that discussion, then it seems not at all clear to me why we would be limiting the conversation to publicly traded corporations at all, when we are as or more interested in Cargill or SC Johnson or your local mom and pop cash flow all-cash business as we are in Google or Apple, who have at least to tell us a few stories about their tax affairs. 
And if we have that conversation, you must admit we are limiting ourselves to corporations ... and not looking at other untold billions of dollars that go untaxed because they're not subject to reporting or withholding. 
So now we come to the punch line, and that is that it is possible that corporate tax transparency is going to throw back the curtain on one sector of society - publicly traded corporations - but the irony is these are the people, this is the very sector about whom we actually have more information about tax than any other, precisely because they already have disclosure rules. That disclosure is exactly why we already know there's a problem, and yet we have not mustered the will to solve it. 
GE has been in the news with its zero corporate tax rate for years. ... I think little is likely to change with more info ... the conclusion, I think, we will be eventually forced to draw is that we, the public, haven't really mustered the political will for reform that would lead to more taxation of American companies. And we really can't help the IRS administer or enforce the tax system. In fact, as Josh suggests, we run the risk of undermining that effort, so disclosure might not get us very far at all. 
What we're going to have to do is start figuring out ways to do a lot more withholding and a lot more third-party reporting, and we are going to have to do that for all of our taxpayers, corporate or not, publicly traded or not. Maybe some or most of us already know that. We didn't need to read the corporate tax returns to tell us that, and we won't know anything new about the corporate tax system when we get that opportunity. 
Now I hate to end with the topic of FATCA. For those of you who don't know, FATCA is a global third-party reporting and preemptory withholding regime designed to make sure Americans declare and pay their taxes on income and assets held overseas. It is not a workable system, it's a mess, but think about the design. In theory, it says the IRS could eventually, once all the kinks are worked out and everybody gets onboard, track every dollar ever paid to any American anytime, anywhere. If that's true, if that's even partially possible, we can see the problem here is not at all about capacity. It is purely a question of political will and nothing more, and it never has been. 
A parade of stories about offshore tax evaders got the U.S. to adopt FATCA. Yet a parade of stories about GE, Google, and Apple avoiding their taxes has not got the U.S. to embrace corporate taxation. 
In fact, we seem to be seeing the opposite response in the base erosion and profit shifting initiative, but that's another story altogether. I'm not convinced, therefore, that corporate tax transparency will lead to more corporate tax. However, I would still love to get my hands on GE's tax return. Thank you.

Friday, February 27, 2015

Brunson on Enforcing Foreign Tax Judgements: Kill the Revenue Rule

The revenue rule is a common law rule that holds that one country will not enforce the tax debts imposed on its people by a foreign sovereign. The revenue rule prevents US courts from enforcing foreign country tax liens, which prevents assistance in collecting taxes for other governments under tax treaties. Samuel Brunson has posted a paper on this topic entitled Accept this as a Gift: Unilaterally Enforcing Foreign Tax Judgments, of interest. Abstract:
Current U.S. law treats foreign tax judgments differently than other foreign civil judgments, prohibiting U.S. courts from recognizing and enforcing the former, even though they recognize and enforce the latter. In this article, Brunson argues that there is no compelling reason for this different treatment and that it is ultimately detrimental to the government’s revenue collection. As long as the revenue rule continues to prevent the United States from enforcing foreign tax judgments, the nation cannot enlist foreign help in reducing the foreign tax gap; other countries will only collect U.S. tax judgments if the United States reciprocally collects their tax judgments. The revenue rule also allows foreign persons to hide their assets in the United States, effectively turning the United States into a tax haven. For the sake of reducing the international tax gap and for the sake of international tax justice, the United States must revoke the revenue rule.

Saturday, February 21, 2015

How does the Uber economy work?

The San Franscisco Chronicle ran a story yesterday entitled Here’s why Uber and Lyft send drivers such confusing tax forms in which they discuss the tax-related oddities surrounding Uber-type arrangements. In brief, these companies send drivers various forms, showing various unexpected amounts, and many drivers are terribly confused about what is going on. What's going on is that Uber and Lyft and so on are probably engaged in an elaborate dodge of both tax and labour/employment regimes.

I think it is fascinating that new economy firms are actually returning us to an old economy model, in which everyone is an artisan hunting for a daily paycheck. Planet Money had a story on the first employee recently that draws the picture, worth a listen.

If Uber drivers are employees, then a whole host of tax and other regulations apply. If they are independent contractors, then some different rules apply. But what if they are neither, and Uber is simply a rider/driver matchmaker and payment facilitator? This is a service that can be provided from anywhere in the world, and perhaps even makes the most sense from an international finance center. The international tax implications are intriguing.  More to come on this subject.

Thursday, February 19, 2015

ICYMI: Call for papers; Conference on Taxation and Citizenship

Together with Reuven Avi-Yonah, I am seeking paper proposals for a Citizenship and Taxation Symposium, to be held at the University of Michigan Law School, Ann Arbor, Michigan, on Friday, October 9, 2015. The call for papers closes on February 28.

This symposium will focus on ongoing developments regarding the unique US practice of taxing citizens who live permanently overseas. With the adoption of regimes such as the expatriation tax added by IRC § 877A and the Foreign Account Tax Compliance Act (FATCA), the taxation of non-residents with US person status now has serious and tangible implications. 

Symposium Background 

 Like most countries, the United States claims the right to tax on a worldwide basis all of the people resident in its territory regardless of their legal status. But virtually alone in the world, the United States also claims worldwide fiscal jurisdiction over its citizens whether or not those persons are or ever have been resident within the territory. The legal claim over citizens dates to the first national income tax and has been continued through the present, but enforcement has always been an abstract ideal rather than a viable program. This status quo has dramatically changed as an unexpected side effect of the adoption of the Foreign Account Tax Compliance Act (FATCA) in 2010. By introducing an unprecedented regime for global third party reporting, FATCA enables the IRS to enforce citizenship taxation on a worldwide basis for the first time in the history of the income tax. As will becomes ability, the normative foundations of citizenship taxation are coming under intense scrutiny. 

To explore these issues, the symposium presenters will offer different perspectives on the meaning, feasibility, efficiency, and fairness of the U.S. practice of citizenship taxation, and will comment on the practical and policy effects of new legislative developments. We invite proposals that consider U.S. citizenship-based taxation from a historical, economic, social, political, institutional, or philosophical perspective. We welcome proposals from junior scholars and from scholars within and outside the United States.

 Symposium Participants 

 In addition to the conveners, the symposium will feature a panel of distinguished speakers, including:
  • Wei Cui, University of British Columbia School of Law 
  • Tessa Davis, University of South Carolina Law School 
  • Michael Kirsch, Notre Dame Law School 
  • Patrick Martin, Procopio, Cory, Hargreaves & Savitch LLP 
  • Ruth Mason, University of Virginia Law School
  • Saul Templeton, University of Calgary Faculty of Law 
  • Phil West, Steptoe & Johnson 
  • Ed Zelinsky, Cardozo School of Law 
Guide for Proposals
  • Deadline for proposals: February 28, 2015.
  • Paper proposals must be between 300–500 words in length and should be accompanied by a CV.
  • Successful applicants will be notified by the end of March 2015. 
  • Proposals should be submitted by email to Reuven Avi-Yonah and Allison Christians
  • Successful applicants must submit a working draft of their paper by September 8, 2015 for circulation among conference participants. 
  • additional info and updates on the symposium will available here.

Monday, February 9, 2015

Why is the OECD so afraid of formulary apportionment?

The OECD has been rolling out a very modest version of country-by-country reporting --only really, really big companies will have to report, the info must be kept strictly hidden from public view, the info mostly won't flow to the world's poorest jurisdictions--and now, from its Feb 6 report, I see that governments must use the info they obtain only to further arms' length transfer pricing, and not to try switching to formulary apportionment:
"Jurisdictions should not propose adjustments to the income of any taxpayer on the basis of an income allocation formula based on the data from the CbC Report"
Formulary apportionment must be a pretty effective way to tax multinationals at source, if the OECD is conditioning government-to-government data flows on not using it.

The picture I am drawing from the OECD's guidelines for CBC is very troubling. If I understand this correctly, the OECD wants info to flow from all jurisdictions to the ultimate parent jurisdiction, which will then dispense info to other jurisdictions provided they have tax information exchange agreements (TIEAs) with the parent jurisdiction, and provided they keep the secrets and don't use the information to switch to formulary apportionment, even if that is a better system for them than arm's length transfer pricing.

Since most multinationals are based in OECD countries, it starts to really matter which jurisdictions have TIEAs with these countries. Indeed, these TIEAs are starting to be the world's answer to everything tax cooperation-related. This means that a country without TIEAs is very quickly finding itself out in the cold when it comes to the brave new world of tax transparency being built by the USA and the OECD.

Just taking a quick zoom in to this world, it should be noted that the United States, home to many of the world's biggest and most profitable multinationals, has very few tax agreements with countries in Sub-Saharan Africa. It is not necessarily that these countries do not want tax agreements with the United States. Many of them have requested tax agreements for many years. But only the US decides who has a tax agreement with the US.

What does this mean for a country in Sub-Saharan Africa that is the destination for a US multinational's direct investment dollars? I am afraid it means that most will continue to struggle to impose income taxes on these multinationals. They will in effect be forced to continue using arm's length transfer pricing even if it is too expensive for them to administer effectively, and even if they would prefer to use formulary apportionment. Meanwhile, they will be forced to set up complex financial asset monitoring and reporting systems to ensure they are not locked out of the global financial system by the US via FATCA or the OECD via the common reporting standard.

Yet even after doing all of that, without the requisite tax agreements in place, these countries seem increasingly likely to receive no tax information from the US or the OECD. That leaves them virtually powerless to stop tax evasion by their own residents, who may freely continue to hide their financial assets in the United States and elsewhere. It also leaves them at a serious disadvantage in addressing complex tax avoidance by US and other OECD-based multinationals.

So much for that quaint notion of "tax sovereignty" the US and the OECD are always so worried about. And so much, I think, for the notion that developing countries have an effective voice in OECD decision-making. The OECD has been very clear that it did not want to even discuss formulary apportionment, even as it purported to review the fundamental international tax structure in its BEPS project. With this latest guidance, it seems the OECD is intent on building a framework that will eliminate any possibility for future discussion for formulary apportionment, as well.










Friday, January 30, 2015

Samaha and Strahilevitz on Information policy and legal design

Adam M. Samaha and Lior Strahilevitz recently posted a paper called Don't Ask, Must Tell — And Other Combinations, which on its face looks like it has nothing to do with tax but it is relevant to questions about compliance and enforcement, so I thought it worth reading. Here is the abstract:
The military’s defunct Don’t Ask, Don’t Tell policy has been studied and debated for decades. Surprisingly, the question of why a legal regime would combine these particular rules for information flow has received little attention. More surprisingly still, legal scholars have provided no systemic account of why law might prohibit or mandate asking and telling. While there is a large literature on disclosure and a fragmented literature on questioning, considering either part of the information dissemination puzzle in isolation has caused scholars to overlook key considerations. 
This Article tackles foundational questions of information policy and legal design, focusing on instances in which asking and telling are either mandated or prohibited by legal rules, legal incentives, or social norms. Although permissive norms for asking and telling seem pervasive in law, the Article shows that each corner solution exists in the American legal system. “Don’t Ask, Don’t Tell,” “Don’t Ask, Must Tell,” “Must Ask, Must Tell,” and “Must Ask, Don’t Tell” each fill a notable regulatory space. 
After cataloguing examples, the Article gives accounts of why law gravitates toward particular combinations of asking and telling rules in various domains, and offers some normative evaluation of these strategies. The Article emphasizes that asking and telling norms sometimes — but only sometimes — are driven by concerns about how people will use the information obtained. Understanding the connection to use norms, in turn, provides guidance for a rapidly advancing future in which big data analytics and expanding surveillance will make old practices of direct question-and-answer less significant, if not obsolete. In any event, the matrix of rule combinations highlighted here can reveal new pathways for reforming our practices of asking and telling in life and law.
The authors cover taxation under the category Must Ask, Must Tell (MAMT). A highlight:
The personal income tax regime is perhaps the most familiar MAMT regime to many Americans. ... Strikingly, because it collects tax information from third parties like employers, banks, and brokerages, IRS already has much of the most important information that a taxpayer will provide on the applicable 1040. This redundancy has sparked reformers to call for replacement of the current, high-transaction costs MAMT regime with one where the government automatically calculates each taxpayer’s liability (or refund) each year and sends her a bill (or check). Notwithstanding the substantial time savings for taxpayers that such plans may entail, these proposals for reform have not been implemented. What gives?
The authors propose that MAMT might be explained by a need to resolve agency problems, which I don't really buy, and then they suggest that making people make tax declarations themselves is a way to make sure they value their citizenship or participate in democracy or make socially good choices, all notions I have heard before but cannot possibly believe when I read that the vast majority of taxpayers pay a tax prep service to help them get through their tax filing every year. Remember, the tax prep service makes money by making it so the taxpayer doesn't have to understand the form, much less the law. The tax preparation industry would definitely find it a hardship if they could not rent-seek off the complexity of tax filing. Remember California's ready return? TurboTax didn't like it.

Rent-seeking by tax compliance professionals, and the ongoing battle to keep the IRS from being able to serve taxpayers properly, are inter-connected key aspects of tax compliance and enforcement. The more hideously complex the law, the more the tax return preparer can charge for the service (I note that paying premiums to overcome tax complexity and attendant risk of error is but one reason why the US practice of treating certain nonresidents as permanent tax residents cannot possibly be fair).

The authors of this paper seem to understand the interplay between complexity and rent-seeking but they dramatically under-emphasize this in the analysis, and that is a pity. This paper barely scratches the surface of the "must ask, must tell" nature of income tax declarations, and I would have liked to have seen more discussion, especially regarding the global scope of the US tax system. But that is a lot to ask of non-tax experts. The paper concludes with a normative discussion that I am still working through, and I'm not sure if there are lessons there for taxation, or not. In any event, a novel paper that raises some interesting points about mandating the furnishing of information.


Thursday, January 29, 2015

Responses to Questions on Canada's Adoption of FATCA IGA

Back in November I noted that MP Ted Hsu presented an order paper question (OPQ 816) on the topic of the unusual process surrounding Canada's adoption of an intergovernmental agreement on FATCA. He asked a series of detailed questions about the treaty tabling and ratification process, and today he got his answers, the substance of which I have reproduced below; you can find the full document here.

I note that there is a common answer to many of the questions: "Information pertaining to Memorandums to Cabinet which are less than 20 years old is considered a cabinet confidence and details of these are excluded from disclosure under the principles of the Access to Information Act." Therefore, most of the answers are: you will find out in 20 years.

Though the government continues to claim that it "followed the treaty tabling policy" and that it made procedural exceptions deliberately, according to stated procedures, and out of urgent need, the facts and the nonexistence of key documents declare otherwise.

Bottom line: if there is a treaty policy in Canada, it is that a sitting government can bind the nation to any agreement of any sort with no parliamentary oversight of any kind and with no transparency, and if that agreement violates existing laws and rights, then it will be up to those whose rights have been violated to mount legal action to assert those laws and get their rights restored. This is not just a matter of some arcane technical procedure. It is fundamentally a problem of access to justice. Law is not free. It is, in fact, quite expensive.

I note that all the answers below are from the Minister of Foreign Affairs except with respect to three answers from Finance, which are indicated in brackets.

ORDER/ADDRESS OF THE HOUSE OF COMMONS
No. Q-816
By Mr. Hsu (Kingston and the Islands) 
Date November 24, 2014 

With regard to the Agreement Between the Government of Canada and the Government of the United States of America 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 (the Agreement), the government's Policy on Tabling of Treaties in Parliament (the Policy), and the statement of Peter Van Loan, Government House Leader, in the House on Monday, April 28, 2014, that "in this case, the fact is that the government, the cabinet, actually did grant such an exemption to the tabling policy. As such, the very words of the policy, the
requirements of the policy, have been followed. The processes for obtaining the exemption were obtained. As a result, the requirement that it be tabled in the House 21 days in advance of the legislation being introduced is not necessary and the policy is fully complied with" (the Statement):

(a) was an exemption to the government's Policy granted with respect to the Agreement;
Yes.
(b) what is the difference between an "exemption" and an "exception" in terms of the Policy;
Either term could be used in the context of the Policy.
(c) if the word "exception" is substituted for “exemption" is the Statement accurate;
Either term could be used in the context of the Policy.
(d) on what basis was the Statement made;
The Statement was made because the Agreement was granted an exemption to the normal treaty tabling process under the Policy.
(e) how was the Government House Leader informed of the exemption or exception being granted to the Policy;
The Department of Foreign Affairs, Trade and Development (the "Department") has no information on how the Government House Leader was informed,
(f) what documents or memos were created regarding this exemption or exception and what are their access or control numbers;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act
(g) who was involved in this decision to grant an exemption or exception and at what stage were they involved;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act
(h) what was the process, step-by-step, by which this Agreement was granted an exemption or exception;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act
(i) who reviewed the decision to grant an exemption or exception, (i) when, (ii) why, (iii) how;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
 (j) does the Policy apply to the Agreement, and how;
Yes. The Agreement was granted an exemption to the normal treaty tabling process under the Policy,
(k) between what departments does correspondence exist-regarding the tabling of the Agreement under the Policy and what are the file numbers for these documents;
There is some correspondence between the Department, and the Department of Finance. There are no file numbers for the correspondence,
(l) on what date was the Agreement concluded;
[Finance] The Agreement was signed and made public on February 5, 2014.
(m) on what date was the Agreement tabled in Parliament;
In the context of the Policy, "If an exception is granted, the Minister of Foreign Affairs will inform the House of Commons that Canada has agreed to be bound by the instrument at the earliest opportunity following the ratification." (6.3b of the Policy), The Agreement was publicly tabled on September 15, 2014 by the Parliamentary Secretary to the Minister of Foreign Affairs as per Standing Order 32.2. That was the earliest opportunity for the Government to inform the House that Canada had agreed to be bound by the Agreement following its ratification - also the first sitting day of the House after the summer Parliamentary recess.
(n) on what date was the Agreement ratified;
Canada ratified the Agreement on June 27, 2014.
(o) when was the House made aware of the text of the Agreement;
In the context of the Policy, "If an exception is granted, the Minister of Foreign Affairs will inform the House of Commons that Canada has agreed to be bound by the instrument at the earliest opportunity following the ratification." (6.3b of the Policy)". The Agreement was publicly tabled on September 15, 2014 by the Parliamentary Secretary to the Minister of Foreign Affairs as per Standing Order 32.2. That was the earliest opportunity for the Government to inform the House that Canada had agreed to be bound by the Agreement following its ratification - also the first sitting day of the House after the summer Parliamentary recess. Additionally, the text of the Agreement was set out in Schedule 3 to Bill C-31, the Economic Action Plan 2014 Act, No. 1, which was introduced in the House of Commons on March 28, 2014.
(p) how was the House made aware of the text of the Agreement;
[Finance] Legislative proposals to implement the Agreement with the U.S., including related amendments to the Income Tax Act, were set out in Part 5 of the Economic Action Plan 2014 Act, No. 1 (Bill C-31 ). The text of the Agreement was provided in Schedule 3 of Bill C-31. Bill C-31 was introduced in the House of Commons on March 28, 2014.
In the context of the Policy, the text of the Agreement was publicly tabled in accordance with the Policy on September 15, 2014. Additionally, the text of the Agreement was set out in Schedule 3 to Bill C-31, the Economic Action Plan 2014 Act, No. 1, which was introduced in the House of Commons on March 28, 2014.
(q) when was the House made aware of the granting of an exemption or exception to the Policy in the case of the Agreement;
The House was first informed of the exemption through the Statement by the Government House Leader on April 28, 2014. In the context of the Policy, the House was made aware of the granting of an exemption when the Agreement was publicly tabled in accordance with the Policy on September 15, 2014.
(r) how was the House made aware of the granting of an exemption or exception to the Policy in the case of the Agreement;
The House was first informed of the exemption through the Statement by the Government House Leader on March 28, 2014. In the context of the Policy, the House was made aware of the granting of an exemption in the Explanatory Memorandum which accompanied the Agreement when it was publicly tabled on September 15, 2014.
(s) when and by what means is the House usually informed that an exception has been granted to the Policy;
In the context of the Policy, the House is usually made aware of the granting of an exemption to the normal treaty tabling process under the Policy in the Explanatory Memorandum which accompanies the treaty when it is tabled publicly.
(t) in the absence of the point of order prompting the Government House Leader's response, how and when would the House have been informed of the exemption;
In the context of the Policy, the House would have been made aware of the granting of an exemption to the normal treaty tabling process under the Policy in the Explanatory Memorandum which accompanies the treaty when it is tabled publicly.
(u) what steps and measures are in place to ensure that Parliament is informed of exceptions being granted to the Policy;
The Policy states: "If an exception is granted, the Minister of Foreign Affairs will inform the House of Commons that Canada has agreed to be bound by the instrument at the earliest opportunity following the ratification."
(v) what steps are in place to ensure that Canadians are informed when exceptions have been granted;
Informing Parliament publicly, as described under (u), is effective as a means of informing Canadians.
(w) what steps and measures are in place to ensure that Parliament is informed of exemptions being granted to the Policy;
The Policy states: "If an exception is granted, the Minister of Foreign Affairs will inform the House of Commons that Canada has agreed to be bound by the instrument at the earliest opportunity following the ratification."
(x) what steps are in place to ensure that Canadians are informed when exemptions have been granted;
Informing Parliament publicly, as described under (w), is effective as a means of informing Canadians.
(y) what does "urgent" mean in the context of the Policy;
The term "urgent" is not defined in the Policy.
(z) how was the ratification of the Agreement determined to be urgent;
The U.S. Foreign Account Tax Compliance Act ("FATCA") was enacted by the U.S. in March 2010. FATCA requires non-U.S. financial institutions to report to the IRS accounts held by U.S. persons. Absent the Agreement, obligations for Canadian financial institutions to comply with FATCA would have been unilaterally and automatically imposed on them by the U.S. as of July 1, 2014. These obligations would have forced Canadian financial institutions to choose between (a) entering into an agreement with the IRS that would require them to report directly to the IRS on accounts held by U.S. residents and U.S. citizens, which would raise concerns about consistency with Canadian privacy laws; or (b) being subject to the 30 percent FATCA withholding tax on certain U.S.-source payments for not complying with FATCA.
The Agreement takes into account the objectives and provisions of the FATCA, while supporting Canada's objectives for improving the integrity and fairness of the Canadian tax system. The Agreement addresses the Canadian concerns about FATCA described above, as well as others. It was realized that observing the Policy's requirement of waiting 21 sitting days would have made meeting the U.S. FATCA deadline of July 1, 2014, unachievable. As a result, the ratification of the Agreement was determined to be urgent, and a request for an exemption to the normal treaty tabling process under the Policy was granted.
(aa) who made the determination in (z), (i) how, (ii) on the basis of what information, (iii) with what authority, (iv) under what criteria;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(bb) how was the decision in (z) reviewed, (i) by whom, (ii) how, (iii) when, (iv) by what criteria;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(cc) who are or were the lead ministers with respect to the Agreement in terms of the Policy and how was this determined;
The Minister of Finance is the lead Minister with respect to the Agreement. The Minister of Foreign Affairs is responsible for tabling treaties under the Policy.
(dd) when and how did the Minister of Foreign Affairs and the lead ministers seek approval from the Prime Minister for an exemption to the treaty tabling process;
Approval from the Prime Minister was sought. Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(ee) when was the approval in (dd) granted and how;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(ff) what correspondence is available -with file and control number- to corroborate the information provided in response to (dd) and (ee);
Approval from the Prime Minister was sought. Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(gg) was a “joint-letter that clearly articulates the rationale to proceed with the ratification, without tabling in the House of Commons" created;
No.
 (hh) with respect to the letter in (gg), (i) who created this letter, (ii) when is it dated, (iii) how can it be obtained, (iv) who has access to it, (v) to whom is it addressed;
No such letter was created.
(ii) was the letter drafted in consultation with the Treaty Section of the Department of Foreign Affairs and International Trade and the relevant Secretariat in the Privy Council Office;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(jj) what documentation exists - with file or control number for each document - to corroborate the information provided in response to (ii);
No such document exists.
(kk) who is responsible for retention and access of such joint letters;
There are no special provisions for retention and access of such joint letters. Joint letters would be subject to the normal retention and access legislation, regulations, and guidelines for the Government of Canada.
(ll) with respect to the Agreement, were the responsible ministers and the Minister of Foreign Affairs aware early on of the need to request an exemption to the treaty process prior to obtaining Cabinet authority to sign a treaty;
Yes.
 (mm) how is "early on" defined for purposes of the Policy;
The term "early on" is not defined in the Policy.
 (nn) how is "aware" defined for purposes of this provision in the Policy;
The term "aware" is not defined in the Policy.
(oo) was a request made in a Memorandum to Cabinet, seeking policy approval for the Agreement;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(pp) what Memorandums to Cabinet exist relative to this agreement, (i) what are their dates, (ii) are they subject to privilege, (iii) who made them, (iv) what are their record or control numbers;
The Department of Finance will respond to this question and sub-questions. Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act
[Finance] Information pertaining to Memorandums to Cabinet which are less than 20 years old is considered a cabinet confidence and details of these are excluded from disclosure under the principles of the Access to Information Act.
(qq) which document in (pp) can be said to "clearly articulate the rationale for the exception to the treaty tabling process";
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(rr) what is the rationale for the exception to the treaty tabling process with respect to the Agreement;
The response in (z) outlines the rationale for requesting an exemption to the normal treaty tabling process under the Policy.
(ss) who determines the rationale per the Policy;
The rationale was prepared through consultations by officials on behalf of the Minister of Finance, the Minister of Foreign Affairs, and the Minister of National Revenue.
(tt) what is an acceptable rationale per the Policy;
There is no definition of “acceptable rationale” under the Policy.
(uu) how is rationale defined in terms of the Policy;
The term "rationale" is not defined in the Policy.
(vv) is there a minimal level of sufficiency for a rationale per the Policy and if so what is it;
There is no definition of a "minimal level of sufficiency" for a rationale under the Policy.
(ww) when was the exception granted;
Information pertaining to Memorandums to Cabinet which are less than 20 years old are considered cabinet confidences and details of these are excluded from disclosure under the principles of the Access to Information Act.
(xx) did the Minister of Foreign Affairs "inform the House of Commons that Canada has agreed to be bound by the instrument at the earliest opportunity following the ratification" per the Policy;
Yes. The Agreement was publicly tabled on September 15, 2014 by the Parliamentary Secretary to the Minister of Foreign Affairs as per Standing Order 32.2.
(yy) when did the actions in (xx) occur and how;
The Agreement was publicly tabled on September 15, 2014, which was the first sitting day of Parliament after the Agreement was ratified.
(zz) in 2014, how many exemptions or exceptions were granted under the Policy before the Agreement;
In 2014, there were two exemptions granted under the Policy. The first was concerning the Agreement. The second was concerning the Canada-Korea Free Trade Agreement.
(aaa) in 2014, was the Agreement's rationale for exception unique;
Yes. The ratification of the Agreement was determined to be urgent, and a request for an exemption to the normal treaty tabling process under the Policy was granted.
(bbb) in 2014, was the Agreement the only item determined to be urgent in terms of the Policy;
In 2014, the Agreement was one of two items determined to be urgent in the context of the Policy.
(ccc) is the Government House Leader always informed of exceptions and exemptions under the Policy and, if so, how;
The Department has no information on how the Government House Leader would be informed of exemptions to the normal treaty tabling process under the Policy. There are no special provisions under the Policy to inform the Government House Leader of exemptions.
(ddd) is the House always informed of exceptions or exemptions under the Policy and, if so, how;
In the context of the Policy, "If an exception is granted, the Minister of Foreign Affairs will inform the House of Commons that Canada has agreed to be bound by the instrument at the earliest opportunity following the ratification." (6.3b of the Policy).
 (eee) how early could the Agreement have been tabled in Parliament;
It was realized early on that observing the Policy's requirement of waiting 21 sitting days would have made meeting the FATCA deadline of July 1, 2014, unachievable. As a result, the ratification of the Agreement was determined to be urgent, and a request for an exemption to the normal treaty tabling process under the Policy was sought, and subsequently granted. Since an exemption to the normal treaty tabling process under the Policy was granted, the Agreement was to be tabled at the earliest opportunity following ratification. This was done as early as it could have been when the Agreement was tabled, in accordance with the Policy on September 15, 2014. It should be noted that the text of the Agreement was also set out in Schedule 3 to Bill C-31, the Economic Action Plan 2014 Act, No. 1, which was introduced in the House of Commons on March 28, 2014.
(fff) how was the date in (eee) determined;
Since an exemption to the normal treaty tabling process under the Policy was granted, the Agreement was to be tabled at the earliest opportunity following ratification. This was done as early as it could have been when the Agreement was tabled, in accordance with the Policy on September 15, 2014. It should be noted that the text of the Agreement was also set out in Schedule 3 to Bill C-31, the Economic Action Plan 2014 Act, No. 1, which was introduced in the House of Commons on March 28, 2014.
(ggg) if the Agreement could have been tabled earlier in Parliament than the date in (o), (i) why was it not, (ii) what decisions were made in this regard, (iii) who made these decisions, (iv) how, (v) on what basis; and
Since an exemption to the normal treaty tabling process under the Policy was granted, the Agreement was to be tabled at the earliest opportunity following ratification. This was done as early as it could have been when the Agreement was tabled, in accordance with the Policy on September 15, 2014. It should be noted that the text of the Agreement was also set out in Schedule 3 to Bill C-31, the Economic Action Plan 2014 Act, No. 1, which was introduced in the House of Commons on March 28, 2014.
(hhh) if the Statement could have been made sooner in the House than Monday, April 28, 2014, (i) why was it not, (ii) what decisions were made in this regard, (iii) who made these decisions, (iv) how, (v) on what basis?
The Department has no information on this question.

Reply by the Offices of the Prime Minister and the Privy Council
With regard to the Agreement, the Privy Council Office has no information in relation to part (ii) regarding a letter drafted in consultation with the Treaty Section of the Department of Foreign Affairs and International Trade.