Governments' New Extraordinary Data Snooping Powers into Offshore Tax Havens

It used to be under older style tax treaties that countries like Canada going after their taxpayer citizens hiding their money in offshore tax havens could only request the data the foreign country had at its disposal in the normal course of doing its own government administration, which conveniently would normally be very little in a tax haven.

The new breed of tax agreements that are progressively being forced upon the tax haven countries contains a far more intrusive power. The snooping country Canada can request in Article 4 that the tax haven country like Jersey (see Finance Canada's announcement) to actively collect and compile information! And by the agreement, the tax haven country agrees to collect it and hand it over.

" If the information in the possession of the competent authority of the requested Party is not sufficient to enable it to comply with the request for information, the requested Party shall use all relevant information gathering measures necessary to provide the requesting Party with the information requested, notwithstanding that the requested Party may not, at that time, need such information for its own tax purposes."

It's hard to tell how many tax havens are affected so far but the steady flow of new agreements (e.g. Cayman Islands, Bahamas, Isle of Man, Bermuda, three of which are in a recent list of best places to open an offshore account on the Offshore Tax Haven blog) and the fact that the OECD countries back this thrust, suggest it will be more and more difficult to hide from the tax tentacles of governments the world over.

update Jan.19 ... and today Guernsey joins the list

The Mighty CAD, Computer Comparison Shopping II: Canada vs UK vs USA and the Olympics

Yes, those things in the blog title post are linked. Let me explain.

A few years ago I compared the price of the same Dell computer and found that a Canadian consumer would need to pay 20-30% more than someone in the UK or the USA.

Goodness, how things have changed. A similar comparison today of a Dell Vostro 220 Mini Tower with the same components delivered within the country tells us that this item in Canada costs 10% more than in the UK and 16% less than in the USA! As noted in the original post, the identical computer should cost the same effective amount in different countries according to the theory of purchasing power parity. The divergence since 2007 has narrowed since 2007 but it is nowhere near purchasing power parity. From being a lot more expensive than in the USA, the Canadian-bought computer is now significantly cheaper. Here are the costs and exchange rates (using mid-market quotes from Google Finance) for this no-monitor system.

• Canada: $598
• UK: £349 at CAD to GBP 1.5475 = approx. CAD $540
• USA: $685 at CAD to USD 1.0357 = approx. CAD $709

Is this only for computers I wonder? Will US shoppers now start reversing the cross-border flow of bargain seekers?

On a shorter time scale of the past year, since the abatement of the flight-to-safety panic of the 2008 crisis, the Canadian dollar has been on a tear against virtually all world currencies, as this chart from RatesFX shows. The blue areas show CAD appreciation and the size of the boxes for each currency on the chart indicate the importance of the currency. Note how the chart is mostly blue. In Olympic terms, the CAD is currently the Gold medal currency ... well maybe silver, since the South Korean won chart is 100% blue (yes, it is tough to own the currency podium ... or does the USD count for more than the won like hockey or curling count for more than short track speed skating? [I've often thought they should count one medal for each player on a team where it is impossible to win more than one medal - like hockey and curling - to compensate for the sports where an athlete can win a half dozen medals]).


That's good for Canadians wanting to travel on the cheap, or Canadian expats who bring Canadian funds into the USA, Mexico, Europe etc to live on. It isn't quite so good from an investment point of view since foreign stock returns have been reduced by the CAD appreciation. Still, as this Google chart showing CAD vs USD and EUR, as well as returns from foreign stock ETFs for the USA (Vanguard's VTI) and the rest of the world excl-USA (Vanguard's VEU) demonstrates, the stock market rebound has far outstripped the CAD currency jump, so a Canadian is still well ahead of the game on a net total basis.

Expats - Where is Best to Live? Canada or Russia or Singapore?

CBC.ca reported on a survey done by HSBC which discovered that Canada offers the expat the best lifestyle. Towards the bottom of the news item, there is mention of a second HSBC survey called Expat Economics 2009, which ranks countries for the best financial rewards for expats. Russia comes out on top there, quite a surprise, but is almost at the bottom of the list for lifestyle.

Which presents the obvious question, which offers the best overall combination?

HSBC Lifestyle Table


HSBC Economics Table


The country with the highest combined ranking is Singapore! It is number 4 in Lifestyle and 6 in Economics. Hong Kong is not too far behind.

Of course, which is best depends on what you are looking for. It seems a lot of retirees, who are not in the wealth accumulation phase of life, like Canada.

The UK ranks poorly in both tables. Expats have a hard time saving as living costs, especially housing, are too high. One wonders why so many people want to come to the UK.

The report says that the credit crunch and its aftermath have caused expats to, surprise(?), spend less and save more. More interesting is the finding that high income $200k+ earners put a much higher proportion of their savings and investments into shares, bonds, property, funds versus the heavy focus on bank savings by those earning less than $60k. One might say that at the time the survey was conducted - February to April 2009 - the big earners seemed to be taking advantage of buying opportunities. And how does one get to be rich / a high income earner - is it possibly by taking advantage of opportunities when they present themselves?

The other interesting indicator is that, as HSBC says, "wealth is moving east". Russian and Asia are the places to make big money as an expat. Europe and North America are falling behind.

One must note of course that HSBC admits that the survey was not scientifically conducted and may be inaccurate.

UK Immigration Rules Ruin People's Lives in Order to "Protect" Them

Through a sad and bizarrely crazy new set of immigration rules, the WWB (World Wide Bureaucracy) has struck again in the UK as a happily and voluntarily married young Canadian-Welsh couple will be obliged to live apart for a couple of years due to regulations supposedly designed to protect young British women of Pakistani or Bangladeshi origin from being forced into marriage. The woman involved is not British (she's Canadian), she has no Pakistani, Bangladeshi or any remotely Asian roots by all appearances ... I know, I know, I'm revealing my deep prejudice by coming to that conclusion by looking at her name (Wallis), her white face, her red hair ... and both she and her husband vehemently deny any coercion to get married.

She's not especially young either, being 19 years old, and sounding rather mature in the BBC news interview found in the above link. It's interesting that UK law permits 16 and 17 year olds to get married with their parents' permission. Above that age, Brit teens can marry if they like. By the logic of the regulations which deny marriage visas to foreigners under 21, the implication is that pure Brit teens are superior to non-Brits.

This case leads one to wonder if the new regulations were cast in such an un-necessarily broad ill-fitting manner to adhere to political correctness and avoid singling out a particular country or ethnic group. The "for the greater good some have to suffer" explanation put forth by the Home Office is laughable. Since all of the cases cited in the What is a forced marriage? booklet of the Forced Marriage Unit website involved teens travelling to another country, maybe the government should simply have banned all foreign travel by British citizens under 21?

As a Canadian who, though considerably older than this couple, came to the UK through marriage to a British citizen and experienced frustrations dealing with the Home Office in getting the necessary visas, I have a great deal of sympathy for Adam and Rochelle. I really hope their problem gets sorted, though the bureaucratic stonewalling and circling of wagons to back up the idiotic Home Office regulations is all too evident in the BBC account.

Residence: a word with too many meanings for Expats

`When I use a word,' Humpty Dumpty said, in rather a scornful tone, `it means just what I choose it to mean -- neither more nor less.'

`The question is,' said Alice, `whether you can make words mean so many different things.'

`The question is,' said Humpty Dumpty, `which is to be master -- that's all.'

Lewis Carroll, Through the Looking Glass

Perhaps Lewis Carroll anticipated the problems of expats and the use of the word "resident" when he wrote these immortal lines. It is easy to empathize with Alice as she struggles to make sense of Humpty D's arbitrary use of language and his haughty motive of controlling her.

The word resident is fraught with many meanings as it is used by bureaucracies and applied to us ordinary Alices. Imagine Alice's problem compounded by two (or more!) countries using the same word with different meanings that have real effect on things like taxation, health care, driving, social benefits, employment, immigration, marriage, children, estates, trusts and on and on. Arrgghh!

For the benefit of other expats like me, today's post addresses the issue with respect to one country - Canada, and one province within it - Ontario. Other provinces will have similar but, of course, not identical rules and interpretations.

Residence in everyday use means something like "live in a place", which is fine until governments mould the idea to fit who they want to include or exclude. We end up with details that are drastically different, almost turning the words inside out. Whereas in Humpty's mouth the motive of control seems harsh in its explicitness and brashness, in government hands the same justification becomes one of the "necessity to attain policy aims" or some such euphemism. The end result for common folk is unfairness and confusion.

The Many Meanings of Residence in Ontario Canada
The charts below show what I have found out to be the different rules and tests for what constitutes "residence", used loosely where various types of government and some private organisations apply the concept of living somewhere. Note that some of these could be wrong despite my best efforts and showing of original sources. I'm not a lawyer and these things are so darn complex, you should double check before taking any action.


Most of the definitions sort of overlap but the details are devilish and each definition has its nuances. There seems to be a significant divide between those relying on physical presence (of varying amounts of time) as the main criteria, and the tax people who rely on ties to the country.

It is amusing to read that Elections Canada claims that a person can have only one ordinary residence at a time. In the tax world and amongst different countries that's not true. Don't know if English law is similar enough to Canadian law but this UK reference says "it is well established that it is possible to be ordinarily resident in more than one country at the same time." (PM North and JJ Fawcett, Private International Law, 13th edition, 1999, page 170 and footnotes a dozen cases as proof).

The result of the divergent rules, for instance, is that it is easy to end up paying all federal and provincial taxes, including Ontario's health premiums, on worldwide income, some of which may not even have been earned in Canada, and yet be ineligible for Ontario health care. Who knows if you will be eligible in the foreign country or if it even offers health care. Is that fair?

Legal scholars North and Fawcett (page 139) make another statement: "Problems in relation to residence would disappear if this concept were to be replaced by the simpler concept of presence." But apparently this has been rejected in the UK and in every other country too. Instead, governments and courts have, over decades of law-making, regulation-making and jurisprudence, on the principle of taking into account the social and economic requirements of a situation, created a sophist's delight that requires 1000 page books (that's how long their book is) to explain the simplified version of reality, leaving the ordinary person in a confusingly impossible state.

It would be completely understandable if many were not so kind-hearted as Alice, who realized Humpty D's precarious sitting spot and worried that he might fall off his perch.

Useful Tax Reading for Canadians Abroad - When a Non-Resident Can Benefit from Filing

Came across Electing to File a Canadian Tax Return as a Non-Resident of Canada for Tax Purposes by Wayne Bewick of Trowbridge Professional Corporation in the Fall 2008 issue of Canadians Resident Abroad. Non-resident spouses with RRSPS and retirees may be able to get appreciable tax savings.