• Service: Tax, International Executive Services, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 8/20/2013

Canada - Actions for Canadian multinationals to avoid FATCA penalties 

August 20:  Canadian multinational companies with U.S. source income—including inter-company payments from a U.S. subsidiary—must provide information required under the U.S. Foreign Account Tax Compliance Act (FATCA).

Even if non-U.S. companies in a corporate group do not have U.S. source income, the Canadian entities will need to determine their status under FATCA.

Failure to comply may result in a 30% U.S. withholding “penalty” on U.S. source income. Because this withholding is a penalty (rather than a tax), it cannot be reduced by provisions of an income tax treaty nor is it eligible for a foreign tax credit on the Canadian tax return.

Taxpayers may also encounter difficulty dealing with banks and other financial institutions in Canada and other countries, whose FATCA compliance requirements include gathering certain information from their clients and customers.

The FATCA withholding rules and information gathering requirements for Canadian banks and other non-U.S. financial institutions take effect 30 June 2014. Canadian companies need to consider taking steps now to be ready to provide the necessary information to non-U.S. financial institutions, tax authorities and payors of their U.S. source income.

Canada is expected to enter into an intergovernmental agreement (IGA) with the United States that would require Canadians to report FATCA information to the Canada Revenue Agency (CRA)—rather than the IRS—among other things. Although the details of the anticipated Canada-United States IGA are not yet available, the broad form of FATCA will remain.

Read an August 2013 report prepared by the KPMG member firm in Canada: Canadian Multinationals — Take Action to Avoid FATCA Penalties

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