Report shows majority of the cases processed found full relief from double taxation
The CRA's 2017 Mutual Agreement Procedure Program (MAP) Report is now available. The report provides a summary of the MAP program for the period from January 1, 2017 to December 31, 2017 and has just been released to align with the OECD's publication of MAP statistics. The MAP report will interest taxpayers with cross-border business or financial dealings, since it offers valuable insights on the CRA's administration of the MAP program.
The CRA concluded 141 negotiable MAP cases in 2017 (160 were completed in 2016). Negotiable MAP cases require negotiation to resolve a tax issue, rather than simply applying a tax treaty's terms.
Of the 141 negotiable MAP cases closed in 2017, 76% of taxpayers who sought assistance obtained full relief from double taxation and 9% received unilateral relief. In the remaining cases, taxpayers did not obtain relief for various reasons (withdrew from the MAP process, objection not justified, etc.)
The MAP program is a CRA program designed to help taxpayers resolve cases of double taxation, or taxation that does not agree with a tax treaty. The MAP procedure is included in Canada's bilateral tax conventions. Under these treaty provisions, residents of either country can ask for help in resolving an issue covered by the treaty. In Canada, authority for resolving tax disputes is delegated to senior CRA officials known as the Competent Authority.
This is the second year that the CRA's MAP report has used a calendar-year reporting period ending December 31. Prior to 2016, MAP reports were for the CRA's fiscal year, ending on March 31.
This new reporting period conforms to the OECD MAP statistics reporting framework. In 2017, the OECD released the results of a peer review assessing several countries, including Canada, on how they administer the MAP article of their respective treaties. Canada is now in the process of completing Stage 2 of the OECD's MAP peer review.
Canadian-initiated cases continue to dominate the MAP process. In 2017, approximately 73% of completed cases were initiated in Canada compared to 27% initiated in foreign territories (primarily the United States). Single-year data can be somewhat unrepresentative since the numbers include completed cases that began in prior years, as well as cases that began earlier in 2017. The trend does not necessarily represent current cases entering the MAP program, although it is reasonable to expect that the large majority of new MAP cases were initiated in Canada.
The MAP report indicates that the average time to complete competent authority negotiations remained close to target in 2017. The CRA targets completion times of 24 months for both foreign and Canadian initiated adjustments. In 2017, the average completion time of Canadian-initiated adjustments was just over 24 months (up from 20 months in 2016, and down from 29 months in the 2015-2016 period).
Interestingly, foreign-initiated adjustments in 2017 were completed in just under 14 months (down significantly from almost 24 months in 2016 and 28 months in the 2015-2016 period).
Stages of completion
The CRA's MAP process has three phases, which are the same as the OECD MAP statistics reporting framework:
Inventories of files
Transfer pricing cases (which the MAP report calls "attribution/allocation cases") are categorized as negotiable cases. These cases require negotiation to resolve the issue (rather than just applying the terms of the tax treaty). At year-end, 80% of negotiable cases were transfer pricing cases.
The CRA's inventory of transfer pricing cases decreased in 2017. It accepted 73 new cases and completed 114 cases. There was a 61-case increase in the CRA's inventory of non-negotiable MAP cases (which are where foreign tax authorities are not involved), from 346 to 407. These cases largely include elections under the Canada-U.S. treaty to defer tax on undistributed accrued pension income.
Transfer pricing methodology
According to the MAP report, the transactional net margin method continues to be the dominant transfer pricing methodology used to resolve transfer pricing cases (71% of cases), followed by the cost-plus and comparable uncontrolled price (CUP) methods (4% each). The profit split and resale price methods were each used only about 1% of the time.
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Information is current to March 05, 2019. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500