The CRA has issued an updated Information Circular 71-17R6 "Competent Authority Assistance under Canada's Tax Conventions". The revised circular, which is current to June 1, 2021, includes changes to document the CRA's administrative policies that were not formally documented in the previous version.
This updated circular provides guidance on obtaining assistance from the Canadian competent authority to persons that fall within the scope of one of Canada's tax treaties. Specifically, the update provides new information on:
- Contacting the Canadian competent authority
- Multilateral Mutual Agreement Procedure (MAP) requests
- Clarification on Adjustments to Business Profits
- Requirements to submit a competent authority request
- Downward transfer pricing adjustments
- Taxpayer responsibilities
- Timelines for MAP
- Tax avoidance
- Waiver of objection and appeals rights
- Issues under the Canada–United States Tax Convention
- Canada, BEPS and the MLI.
Summary of updates
Contacting the Canadian competent authority
In this updated circular, the CRA encourages taxpayers to file competent authority requests using the CRA's E-Services. To file a request, taxpayers must first obtain a reference number through the CRA's Competent Authority Services Division (CASD). Alternatively, the CRA has informally recommended that taxpayers can file competent authority requests via email for the initial request submission. Following the email request, the CRA will assign a reference number to the case, and the taxpayer must use that reference number to file all future information submissions regarding that request using the CRA's E-Services.
Requests for assistance from the Canadian competent authority
The CRA confirms its long-standing policy that a taxpayer must file competent authority requests with the tax authorities of all entities involved with a transaction. Specifically, the CRA states that a taxpayer should file a separate competent authority request in each country (or have one authorized party file simultaneously with each of the appropriate competent authorities). The circular notes that the Canadian competent authority will only consider a case once a formal request is filed in Canada.
Multilateral MAP requests
In the updated circular, the CRA states that a taxpayer can make a multilateral MAP request and provides a high-level summary of the process for making that request. The CRA indicates that a taxpayer must formally request a multilateral process in all jurisdictions and provide the necessary authorizations with respect to the exchange of information among competent authorities before the CRA will explore the possibility of a multilateral request.
Clarification on adjustments to business profits
The CRA confirms that even though the wording related to adjustments to business profits (Article 9 of the OECD Model Convention) is different to Canada's income tax conventions relating to transfer pricing adjustments, the CRA states that all of Canada's income tax conventions allow for the possibility of MAP related to transfer pricing adjustments.
Requirements to submit a competent authority request
In this updated circular, the requirements to submit a competent authority request remain primarily unchanged. However, the CRA now indicates that all submissions must address:
- Part XIII implications of the adjustment for which the competent authority request is being filed
- The status of any objection or appeal as taxpayers are not able to pursue the competent authority and appeals process simultaneously.
In addition, the CRA has removed the requirement for taxpayers to provide their views on the possible approach to a resolution. Taxpayers can still make recommendations, however, they are not required to include the recommendations in their submissions.
Downward transfer pricing adjustments
The CRA confirms that it will accept a request for a downward adjustment to the income of a Canadian taxpayer in the following circumstances:
- The other tax authority has accepted an upward adjustment for consideration
- The foreign competent authority takes steps to resolve the case with the Canadian competent authority
- The request is made within the time limits of the applicable treaty
- The issue has not been precluded from the scope of the Canadian competent authority for policy reasons.
In this update, the CRA highlights the importance of filing the competent authority and MAP requests on a timely basis. The CRA says certain treaties do not stipulate a time limit for presenting a case and those treaties generally do not have rules that override the domestic time limits. In those situations, the CRA suggests that taxpayers submit requests to the Canadian competent authority well before the expiry of domestic time limits under the Act or file waivers of the normal reassessment period under subsection 152(4) of the Act.
The CRA also reminds taxpayers that when the Multilateral Instrument (MLI) comes into force, it may affect MAP time limits and other provisions in Canada's treaties.
Timelines for a MAP
The updated circular indicates that taxpayers can expect the Canadian competent authority to complete a MAP settlement in a two-year period (from the date the complete information required has been received).
The CRA states that the Canadian competent authority will not negotiate cases where the reassessment relies on any anti-avoidance provision in the Act (e.g., section 245, paragraph 247(2)(b)) and the Income Tax Regulations.
Waiver of objection of appeal rights
Where a taxpayer has waived their objection or appeal rights as part of a settlement of an audit or appeals matter, the CRA confirms that taxpayers are eligible to obtain competent authority assistance for relief from double taxation.
The CRA also confirms its long-standing position that taxpayers are required to waive all further domestic appeal rights when accepting a competent authority settlement.
Issues under the Canada–United States Tax Convention
In this update, the CRA provides guidance on navigating the notification process as specified in Article IX of the Canada - United States Income Tax Convention (Canada-US Treaty). Specifically, the CRA says a taxpayer must file notifications for competent authority assistance within six years from the taxation year in which the adjustment or potential adjustment relates. In addition, the CRA states that there is no time limit in respect of these articles in the Canada-US tax treaty (even though most of Canada's treaties have a time limit).
Canada, BEPS and the MLI
The CRA recommends that taxpayers refer to the OECD website for up to date information on the status of Canada's official notifications, reservations and a list of potentially modified tax treaties with regards to the MLI's impact on Canada's income tax convention.
For more information, contact your KPMG advisor.
Information is current to June 29, 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