August 9, 2011 No. 2011-22
	Transfer Pricing News — 2011 Report Card on CRA’s Mutual Agreement Program The CRA’s 2010-2011 Mutual Agreement Procedure Program Report shows that interest in the program continues to be strong. This report will interest taxpayers with cross-border financial dealings as it offers valuable insights about trends in the CRA's administration of the mutual agreement procedure (MAP) program. Although the CRA concluded 95 MAP cases in 2010-11, up from 78 completed cases in 2009-10, the number of cases where no relief was obtained also increased. Background 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. Canadian-initiated adjustments going faster The MAP report indicates that the average time to complete competent authority negotiations of Canadian-initiated adjustments has increased to about 32 months in 2010-11 (from about 23 months in 2009-10), while foreign-initiated adjustments dropped to about 20 months (from almost 31 months) over the same period. The main time increase in adjustments once again occurred in the "negotiation stage" phase of the four-step mutual agreement procedure, whereas in years prior to 2008 it was the other three stages (i.e., initiation/acceptance, preparation of position and evaluation of position). KPMG observation Due to this increase in time needed to complete competent authority negotiations, the CRA is no longer meeting its target completion time of 24 months for Canadian-initiated adjustments. However, it has now hit this target for foreign-initiated adjustments. More transfer pricing cases resolved 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. The CRA resolved more negotiable cases this year; 95 negotiable cases were settled in 2010-11, up from 78 in 2009-10. The CRA also completed more MAP cases than it accepted into the program this year (94 cases). According to the MAP report, the transactional net margin method is the dominant transfer pricing methodology used to resolve transfer pricing cases (43 out of 95 cases), followed by cost-plus (19 cases) and comparable uncontrolled price (CUP) (10 cases). There were also more Canadian-initiated cases than in previous years. In 2010-2011, 88% cases were initiated in Canada compared to foreign territories, up from 81% in 2009-2010. Unresolved double taxation cases The number of unresolved double taxation cases has increased to 14% (13 cases). Previously, only 4% (3 cases) of taxpayers who sought assistance through the MAP in 2009-2010 and whose case was closed did not obtain relief. The CRA also added three new sets of reasons to this year’s MAP Report to explain why relief from double taxation was not obtained: · The other competent authority was unable to provide relief because of domestic statute-barred or administrative issues · The taxpayer was unable to demonstrate that either Canada or its treaty partner undertook any action resulting in double tax or contravention of a tax treaty · The taxpayer withdrew the request to the other competent authority and the CRA is unable to grant unilateral relief. KPMG summary The notable increase in MAP cases completed (to 95 from 78) may be attributed to mandatory arbitration with the United States under the Canada-U.S. treaty that began on December 15, 2010 (the MAP report covers the period ending March 31, 2011). However, the CRA has not yet reached the levels of 2003-2005, when the MAP program completed over 100 cases each year.  While it is also encouraging to see that the number of completed MAP cases outpaced the number of new MAP cases entering the program in 2010-2011, the percentage of cases where relief from double taxation was achieved has dropped (from 95% to 85%) between 2009-2010 and 2010-2011. It is also discouraging that the number of cases where no relief was obtained has increased. 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 August 3, 2011. 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, a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm affiliated with KPMG International, a global network of professional firms providing Audit, Tax, and Advisory services. Member firms operate in 145 countries and have more than 123,000 professionals working around the world. The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative. Each KPMG firm is a legally distinct and separate entity, and describes itself as such. KPMG's Canadian Web site is located at www.kpmg.ca © 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.