CRA cancels APA recovery charges

CRA cancels APA recovery charges

Taxpayers are increasingly looking to Advance Pricing Arrangements (APAs) to achieve transfer pricing certainty


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The CRA will no longer require taxpayers to provide a cost recovery charge when entering the Advance Pricing Arrangement (APA) program. In an announcement released on February 5, 2021, the CRA says that taxpayers will not have to pay this recovery charge to cover the CRA's estimated out-of-pocket costs for completing the APA process. The CRA indicates that this change follows a detailed review of its cost sharing model under the APA program, an analysis of other tax authorities' best practices, and experience using online remote collaboration tools during the COVID-19 pandemic.

The CRA's welcome cancellation of this cost recovery charge is just one of several recent trends and developments that make APAs an increasingly attractive option for many taxpayers.


APAs are a taxpayer-initiated process in which an agreement is reached governing the pricing of intercompany transactions for a prospective period, typically covering five taxation years. Primarily, APAs are conducted on a bilateral basis and involve the negotiation and agreement of the transfer pricing between the local tax authority (i.e., the CRA) as well as the local tax authority of the related party involved in the transactions. Where transactions involve multiple jurisdictions, taxpayers can pursue a multilateral APA process. Taxation years that have already been completed can also be incorporated into APA processes via the rollback provision that allows for the inclusion of completed taxation years provided a CRA transfer pricing audit has not been initiated.

APA recovery charge cancelled

Previously, the CRA required taxpayers to pay a recovery charge to cover the CRA's estimated expenses to complete the APA process, including travel to taxpayer locations to conduct site visits and functional interviews, as well as travel to engage in in-person negotiations with the opposing tax authority. This payment was viewed as a deposit (rather than a user charge), as any amount not spent by the CRA was typically refunded to taxpayers at the end of the APA process.

The CRA notes that, for APAs currently in process, it will continue to issue recovery charge refunds at the end of the process.

APAs — Trends and developments

Many multinationals, as well as smaller taxpayers may want to consider the benefits of the APA program to pursue tax certainty. KPMG's Transfer Pricing team has also noted the following recent trends and developments in this area.

OECD endorses APAs

The OECD's work on BEPS Action 14: Making Dispute Resolution Mechanisms More Effective, encourages tax authorities across the globe to use bilateral APAs. In the OECD's view, bilateral APAs provide an increased level of certainty for both jurisdictions involved, lessen the likelihood of double taxation, and may proactively prevent transfer pricing disputes.

Time and cost savings

There may be an increase in transfer pricing audit activity in the upcoming years, due to the CRA's view that government assistance provided during the COVID-19 pandemic should not be shared with non-resident affiliates through intercompany transactions. This audit activity in the upcoming years may lead to multiple lengthy dispute processes, resulting in possible double taxation and penalties. However, by entering into an APA process, taxpayers can skip the audit process altogether and proceed directly to the Competent Authority to obtain certainty and faster relief from double taxation on their intercompany transactions. Specifically, reaching certainty in an APA rather than achieving the same outcome through an audit and Mutual Agreement Procedure (MAP) can save taxpayers up to four years of time. Further time savings can be gained during the APA renewal process following the completion of the original APA, provided no significant changes have occurred in the taxpayer's intercompany transactions.

Increasing transfer pricing penalties

Taxation years covered by an APA are not subject to transfer pricing penalties. In Canada, these penalties are equal to 10% of an audit adjustment where the adjustment is above the required threshold for consideration and adequate documentation does not exist. At a recent Canadian Tax Foundation transfer pricing conference, the CRA indicated that the application of penalties is increasing (penalties applied now in over 50% of referrals), according to its statistics.

Changes in transactions or operations

The CRA has shown willingness to consider an APA when there are changes in transactions or operations. These will be evaluated on a case by case basis. Previously, the CRA viewed such transactions as covering a restructuring of the operations of the taxpayer, which were not suited for the APA process. Given the impact of COVID-19 on taxpayers' operations and transactions, the APA process may help obtain certainty on any changes to policies on a prospective and retroactive (where possible) basis.


The APA process is more collaborative in reaching an agreement on an arm's length outcome for a taxpayer's intercompany transactions. Conversely, the audit process can be an adversarial and time-consuming process.

Smaller taxpayers

While large multinationals have historically pursued APAs, the CRA's continued focus on audit activity has increased costs and uncertainty for taxpayers of all sizes. As a result, smaller companies have increasingly viewed APAs as a path towards certainty.

We can help

KPMG's Transfer Pricing team has significant experience in assisting clients through the APA process. We can help you explore whether an APA would be appropriate in your situation.

For more information, contact your KPMG advisor.

Information is current to February 8, 2021. 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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