Canada - English

Transfer Pricing News — 2012 Report Card on CRA’s Mutual Agreement Program 

Transfer Pricing News — 2012 Report Card on CRA’s Mutual Agreement Program

November 16, 2012
No. 2012-37

The CRA’s 2011-12 Mutual Agreement Procedure Program Report shows that interest in the program continues to be strong. This report will interest taxpayers with cross-border business or financial dealings as it offers valuable insights about trends in the CRA's administration of the mutual agreement procedure (MAP) program. The CRA concluded 97 MAP cases in 2011-12, slightly more than its 95 completed cases in 2010-11. Eight cases received no relief or partial relief from the program, representing a notable decrease from 14 such cases in 2010-11.


The MAP program is a CRA program designed to help taxpayers resolve cases of double taxation or taxation not in accordance with a tax treaty. The MAP procedure is included in Canada's bilateral tax conventions; under these treaty provisions, residents of either country can ask for help in resolving an issue covered by the treaty. In Canada, authority for resolving tax disputes is delegated to senior CRA officials known as the Competent Authority.

The 2011-12 MAP report is for the CRA’s year ended March 31, 2012.


No change to average completion times

The MAP report indicates that the average time to complete competent authority negotiations has not noticeably changed since 2010-11. Canadian-initiated adjustments are completed in 31 months, whereas foreign-initiated adjustments are completed in 20 months. The CRA targets completion times of 24 months for both types of cases.


There are four phases to the CRA’s MAP process: (1) Acceptance, (2) CRA prepares position, (3) Foreign authority evaluates CRA position, and (4) Negotiation. While average completion times were unchanged, there were trade-offs among the four phases. On Canadian-initiated adjustments, the CRA prepared its positions in fewer months while foreign authorities took more time to respond. On foreign-initiated adjustments, the CRA took more time to present its position and foreign authorities reduced their time to evaluate CRA positions. In all cases, acceptance into the program takes much longer than the CRA’s one-month target. 


KPMG observation
A disappointing observation over the past five years is the sharp rise in completion times for Canadian-initiated adjustments from 20 months to 32 months. On the other hand, completion times for foreign-initiated adjustments decreased considerably over the same period from 38 months to 20 months.

Therefore, we see a diverging trend over the past five years between Canadian-initiated and foreign-initiated adjustments. The rise in completion times for Canadian-initiated adjustments seems troubling because these adjustments represent the vast majority of MAP cases.

Negotiation times
The MAP report shows no improvement in negotiation times for Canadian-initiated adjustments and a 30% rise in negotiation times for foreign-initiated adjustments.

Position paper times
On a positive note, in 2011-12 the CRA substantially decreased its average time to prepare its position papers for Canadian-initiated adjustments and has now bettered its target of five months for this phase.


A tale of two inventories

Transfer pricing cases (which the MAP report calls “associated enterprises cases”) fall into the category of negotiable cases. These are cases for which negotiation is necessary to resolve the issue rather than simply applying the terms of the tax treaty. More than 90% of negotiable cases are transfer pricing cases.


The CRA resolved two more transfer pricing cases this year than it accepted into the program, thus slightly reducing the inventory of transfer pricing cases.

Inventory of non-negotiable MAP cases, where a foreign tax authority is not involved, rose from 22 to 91. These cases largely concern withholding taxes.


Again, Canadian-initiated cases dominate the MAP process. In 2011-12, 92% of double tax cases were initiated in Canada compared to foreign territories, up from 88% in 2010-11. Single-year trends can be somewhat deceiving since the numbers represent completed cases that would have commenced in prior years. The trend does not necessarily represent current cases entering the MAP program.

KPMG observation - Arbitration procedures
The possibility of unresolved MAP cases going to binding arbitration has been a positive force in getting tax authorities to make compromises to resolve MAP cases within the prescribed two-year limitation period. Competent authorities appear to be pushing to resolve MAP cases before they are eligible for arbitration since such cases could otherwise be viewed as a failure of the relevant competent authorities.


Transfer pricing methodology


According to the MAP report, the transactional net margin method continues to be the dominant transfer pricing methodology used to resolve transfer pricing cases (39 out of 97 cases), followed by cost-plus (19 cases) and comparable uncontrolled price (CUP) (nine cases). Profit splits were used to resolve three cases in 2011-12, compared to zero in 2010-11.

Unresolved double taxation cases

The number of unresolved double taxation cases decreased to 6% (six cases). In 2010-11, 14% (13 cases) of MAP cases were closed without any relief from double tax. Interestingly, the CRA added one new reason to explain four unresolved cases (i.e., the taxpayer’s request for a refund of withholding tax was filed outside the time limitation provisions in a tax convention and Canada’s Income Tax Act).


KPMG summary
We find promising trends in 2011-12 when we look at the direction of transfer pricing case inventory. In the prior four years, the MAP program accepted 403 negotiable cases and resolved only 305, increasing inventory by nearly 100 cases. In 2011-12, ending inventory decreased, which we hope signals that completion times will soon decrease with the CRA carrying a smaller case load forward into the next year.


Download KPMG’s new Tax Hub Canada app
KPMG’s free Tax Hub Canada App for iPads and Blackberrys provides timely, convenient tax news and tax rates to help you respond to changes in tax rules and regulations. Download the app today.


We can help


Your KPMG adviser can help you review your company’s transfer pricing policies and help you verify, support and document the existence of arm’s-length intercompany charges for transactions within your corporate group. For details, please contact your KPMG adviser.











Information is current to November 15, 2012. The information contained in this TaxNewsFlash-Canada 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.


KPMG LLP, an Audit, Tax and Advisory firm ( and a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative (“KPMG International”). KPMG member firms around the world have 145,000 professionals, in 152 countries.


The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such.

KPMG's Canadian Web site is located at

© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.


The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.