* Flaherty says has spoken to Geithner on issue
* Says bilateral agreement already covers most of the info
* Treasury says not considering exemption for Canada
* Some bankers advising against holding U.S. securities
(Adds U.S. Treasury remarks, paragraphs 2, 7; Swiss bankers
advising clients not to hold U.S. securities, paragraph 10)
By John McCrank
NEW YORK, Oct 5 Canadian Finance Minister Jim
Flaherty voiced cautious optimism on Wednesday that Canada
would be granted an exemption from an onerous U.S. tax
reporting law that he called an inefficient use of capital.
But the U.S. Treasury said an exemption for Canada was not
Flaherty said in a speech in New York that he had spoken to
U.S. Treasury Secretary Timothy Geithner about the regulation,
known as FATCA, or the Foreign Account Tax Compliance Act,
which will require overseas banks to report on U.S. clients to
the Internal Revenue Service.
Asked at a news conference whether he thought Canada could
get an exemption, he said: "We've had very useful discussions
with the American officials and they understand that the goal
of the legislation is to get after tax evaders using tax
havens, and that Canada is not a tax haven."
He added: "I think we're getting some progress - we're not
there yet. Cautiously optimistic, but we have to get there."
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 IRS.
Responding to Flaherty's remarks, U.S. Treasury spokeswoman
Sandra Salstrom said in an email to Reuters: "We're talking
with foreign governments to figure out how we can implement
FATCA in a cooperative way and leverage our existing
relationships, but Treasury is not considering exempting
specific countries from FATCA."
There are a large number of American-Canadian dual citizens
in Canada, who would be subject to the new rules. Flaherty
pointed out that Canada and the United States already have a
bilateral agreement on tax information exchange that covers
most of the information being sought by FATCA.
The new regulation has drawn criticism from the world's
banks and business people about its reach and 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
"Hundreds of millions of dollars spent on developing
compliance processes to target Canadian citizens would not be a
useful exercise, and they are, for the most part, people who
actually have no tax liabilities because they do not earn
income in the United States," Flaherty said.
(Additional reporting by Randall Palmer in Ottawa; editing by