Global Tax Adviser
December 13, 2011
APA Program’s Report Card for 2011
Leader, Global Transfer Pricing Dispute Resolution
The CRA recently released its Advance Pricing Arrangement Program Report for
2010-2011. The report seems to indicate that the CRA is making the program
more restrictive. The numbers of APAs accepted and completed are lower than
in the past and more APA applications have been withdrawn. The CRA makes
some new comments in the report that seem to indicate more stringent
criteria for accepting APA applications. Though the CRA seems to be
tightening its acceptance criteria, its comments may be useful for taxpayers
who want to apply to the program because they help to clarify what the CRA
is looking for in APA applications.
An APA is an arrangement between a multinational
enterprise and one or more tax authorities confirming, in advance, an
appropriate transfer pricing methodology to be applied to one or more specific
intercompany transactions for a specified term. Canada’s APA program is
administered by the Competent Authority Services Division (CASD) within the
CRA’s International and Large Business Directorate.
Highlights of the report
François Vincent, Leader, Global Transfer Pricing Dispute Resolution, points out
the following highlights of the report:
The withdrawal of APA applications continues to be high with six applications
withdrawn in 2010-2011 for a total of 17 over a two-year period between
2009-2011, compared to 16 for almost 20 years between 1990 and 2009. François
believes this result reflects the CRA's new policy of restricting access to the
APA program. The number of APA withdrawals post-acceptance also hit an all-time
high at four.
The CRA accepted 20 cases into the APA program in 2010-2011, the lowest number
since 2006-2007. A total of 16 APAs were completed, also the lowest number since
2006-2007. François notes that the CRA is closing fewer APAs even though it is
stemming the input of new APAs.
The average time to complete a bilateral or multilateral APA increased again to
50.3 months (from 48.8 months) and the median time increased to 49.6 months
(from 45.8 months).
New APA restrictions
François also selected the following as the most important new paragraphs in the
APA program report, which indicate where the CRA seems to be tightening the
The report states on page 9:
More recently, there has been an influx [of] APA requests pertaining to specific
transactions that are not well suited to the APA program. APAs are best suited
for current transactions that will likely continue on into the future with
little to no change to the transactions themselves, and where the underlying
assumptions that form the basis of an APA transfer pricing methodology (TPM) do
not change over the duration of both the immediate pre-APA period and the APA
period itself. Transactions involving one-time events, such as corporate
restructurings of a significant nature, reside outside of the
scope of the APA program [emphasis added].
This paragraph seems to set out the criteria the CRA will follow in accepting
new APA applications:
The report states on page 26:
Our increased due diligence at the pre-file stage includes asking for more
information on certain types of transactions, including transactions involving
to make an informed decision about whether to accept or reject an APA request.
We are providing more feedback during and after the pre-file meeting with the
intention of helping taxpayers come up with a
and complete submission with which the CRA can work.
Another example of the CRA’s increased pre-file scrutiny relates to business
restructurings. We have recently confirmed in response to queries from
accounting and legal representatives that the CRA
will not accept business restructuring transactions
or the valuation/ownership issues that result from a restructuring during or
before the APA period. APAs are best suited for current transactions that will
likely continue on into the future with little to no change to the transactions
themselves, and where the underlying assumptions that form the basis of an APA
transfer pricing methodology do not change over the duration of both the
immediate pre-APA period and the APA period itself. Without this stability we
are unable to conduct a proper analysis. The CRA requires a certain stable cycle
or period of time without a significant event in order to work an APA file
These paragraphs seem to state the types of transactions the CRA will not accept
(i.e., one-time events and business restructurings) and those that will be more
difficult to get accepted into the APA program (i.e., intangibles).
Although the CRA says it does not favour one-time transactions, taxpayers who
can demonstrate that their transaction is tied in to ongoing transactions may
still be able to get their APA applications accepted.
If your company’s transactions don’t fit the criteria for an APA, there are
other options for proactively managing your transfer pricing matters. For
details, contact your KPMG adviser.