MAP program report reflects increased CRA transfer pricing audit ...
MAP program report reflects increased CRA transfer pricing audit ...
MAP program report reflects increased CRA transfer pricing audit ...
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2<br />
significantly increase the number<br />
of agents assigned to the <strong>audit</strong> of<br />
international issues.) The number<br />
of Canadian <strong>MAP</strong> cases overall will<br />
likely also continue to increase.<br />
Timelines increasing<br />
The time required to complete<br />
these Canadian-initiated cases<br />
has <strong>increased</strong> significantly, to<br />
an average of 32.16 months,<br />
compared to 22.73 months in<br />
the prior fiscal year. This far<br />
exceeds the Canadian Competent<br />
Authority’s targeted timeline of 24<br />
months.<br />
Surprisingly, the time to complete<br />
the case preparation and evaluation<br />
phases for Canadian-initiated cases<br />
has <strong>increased</strong> to a combined 15.49<br />
months, up from approximately<br />
eight months in the prior year.<br />
Speculatively, this may be due to<br />
several factors:<br />
• Increasingly complex issues being<br />
taken on by <strong>CRA</strong> international<br />
<strong>audit</strong>ors<br />
• The Canadian Competent<br />
Authority putting more effort into<br />
shoring up Canadian assessing<br />
positions<br />
• Stretched resources in the <strong>CRA</strong>’s<br />
<strong>MAP</strong> <strong>program</strong><br />
• The statistical effects of several<br />
very old cases being concluded<br />
in the year, partly prompted by a<br />
push to resolve older Canada-US<br />
cases before they became eligible<br />
for binding arbitration under the<br />
Canada-US Tax Treaty<br />
These results suggest the Canadian<br />
Competent Authority may need to<br />
make procedural changes given<br />
the tighter timelines brought on<br />
by the advent of the US arbitration<br />
provision.<br />
Conversely, the time to complete<br />
foreign-initiated cases decreased to<br />
20.39 months from 30.53 months<br />
in 2009–10. The reasons for the<br />
decrease are unclear, but given the<br />
small number of foreign-initiated<br />
cases completed in the year, it<br />
could be the result of a few quickly<br />
concluded cases. In this respect, the<br />
current <strong>report</strong> shows a decrease in<br />
the average negotiation period by<br />
almost eight months from the prior<br />
year.<br />
Overall, the closing inventory of<br />
negotiable cases stood at 224<br />
cases at the end of the fiscal year,<br />
virtually unchanged from the 225<br />
cases at the end of 2009–10. With<br />
regard to <strong>transfer</strong> <strong>pricing</strong> cases,<br />
however, which represent the<br />
majority of the <strong>MAP</strong> cases, the<br />
ending inventory actually <strong>increased</strong><br />
from 188 in 2009–10 to 194, with<br />
80 new cases accepted but only 74<br />
completed.<br />
A higher percentage of cases<br />
did not receive relief from<br />
double taxation<br />
Of the 95 cases negotiated with<br />
other jurisdictions, 13 (14%) did<br />
not obtain complete relief from<br />
double taxation. This is a somewhat<br />
higher percentage than usual, as<br />
rates below 10% have historically<br />
prevailed. In 2009–10, only three<br />
such cases were <strong>report</strong>ed.<br />
Of the 13 cases in 2010–11, it<br />
appears that only two would fall<br />
into the category of the respective<br />
competent authorities being unable<br />
International Tax Alert Transfer Pricing<br />
to come to an agreement, while<br />
the other 11 cases failed to receive<br />
relief for a variety of what might<br />
be described as technical reasons,<br />
such as improper notification,<br />
exceeding time limits, or procedural<br />
limitations. These latter cases<br />
particularly exemplify the need for<br />
taxpayers to pay close attention<br />
to the process and technical<br />
requirements of the Income Tax<br />
Act and applicable tax treaties<br />
as they move along through the<br />
dispute resolution process in order<br />
to fully protect their rights and<br />
maintain the highest probabilities<br />
of obtaining relief from double<br />
taxation. Presumably all of these<br />
cases arose in situations where<br />
arbitration was not available.<br />
Significant increase in nonnegotiable<br />
<strong>MAP</strong> cases<br />
The <strong>report</strong> indicates the Canadian<br />
Competent Authority resolved<br />
649 non-negotiable <strong>MAP</strong> cases<br />
compared to 333 such cases in<br />
2009–10. Non-negotiable cases<br />
are those that do not require the<br />
Canadian Competent Authority to<br />
negotiate with another jurisdiction,<br />
and usually pertain to excess<br />
withholding tax.<br />
The <strong>report</strong> does not provide an<br />
explanation for the increase except<br />
to say the situation is not expected<br />
to persist. From this, we speculate<br />
the bubble in non-negotiable<br />
cases relates largely to reduced<br />
withholding rates for interest<br />
payments under the Canada–US<br />
Tax Treaty brought in by the Fifth<br />
Protocol for 2009 and 2010—where<br />
payers did not withhold at reduced<br />
rates and recipients applied for