This update will interest taxpayers with cross-border business or financial dealings
The CRA's 2018 Mutual Agreement Procedure Program (MAP) Report is now available. The report provides a summary of the MAP program for the 2018 calendar year. The MAP report will be of interest to taxpayers with cross-border business or financial dealings, since it offers valuable insights on the CRA's administration of the MAP program.
Canada received three awards from the OECD's Forum on Tax Administration for its MAP performance in 2018. They include recognition for:
The MAP program is a CRA initiative, 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.
The OECD also publishes MAP statistics on an annual basis and further breaks the MAP caseload down by each jurisdiction, including Canada. This CRA MAP Report was released to coincide with the OECD's publication of its own statistics.
The CRA concluded fewer negotiable MAP cases in 2018 than in the previous year (126 in 2018, and 141 in 2017). Negotiable MAP cases require negotiation to resolve a tax issue, rather than simply applying a tax treaty's terms. However, in 2018, there was still an overall 16% decrease in caseload inventory.
Canadian-initiated cases continue to dominate the MAP process. In 2018, 77% of completed cases were initiated in Canada.
Average completion time
The MAP report indicates that the average time to complete competent authority negotiations in 2018 remained close to target. The CRA targets completion times of 24 months for both foreign and Canadian initiated adjustments. In 2018, the average completion time of Canadian-initiated adjustments was just under 22 months (down from just over 24 months in 2017).
Foreign-initiated adjustments in 2018 were completed on average in just under 26 months (up from just under 14 months in 2017, and almost 24 months in 2016).
Overall, the average time to complete negotiable cases was just under 23 months.
Of the 126 negotiable MAP cases closed in 2018, just over 80% of taxpayers who sought assistance obtained full relief from double taxation and a little over 6% received unilateral relief. However, in some cases, taxpayers did not obtain relief for various reasons (i.e., their objection was not justified, the request was withdrawn by the taxpayer or the issue was resolved via a domestic remedy, etc.).
Inventories of files
Transfer pricing cases
Transfer pricing cases (which the MAP report calls "attribution/allocation cases") are categorized as negotiable cases and require negotiation to resolve an issue (rather than just applying the terms of the tax treaty). At year-end, 78% of negotiable cases were transfer pricing cases.
The CRA's inventory of transfer pricing cases decreased in 2018. It accepted 75 new cases and completed 102 cases. On average, these transfer pricing cases were closed in just under 25 months.
Cases not involving foreign tax authorities
There was a significant decrease (288 cases) in the CRA's non-negotiable MAP cases in 2018 (which are cases where the foreign tax authority is not involved), from 407 to 119. These cases largely relate to elections under the Canada-U.S. treaty to defer taxation on undistributed pension income. Based on the report, the decrease reflects increased staff and a push to close-out aging cases.
The report also acknowledges the effect of Canada's ratification of the "Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting" (MLI), which took place on August 29, 2019. The MLI entered into force for Canada on December 1, 2019, it modifies many of Canada's tax treaties and may affect treaty time limits and other MAP-related treaty provisions. For example, the amount of time to request MAP assistance may be extended from two years to three. The MLI also introduces mandatory binding arbitration to resolve certain classes of MAP disputes into some treaties.
The CRA also says that it continues to work on updating its MAP and APA guidance.
For more information, contact your KPMG advisor.
Information is current to January 21, 2020. 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
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