MAP program report reflects increased CRA transfer pricing audit ...

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