The CRA concluded 105 MAP cases in 2013-14 (down from 114 cases in 2012-13), a 9% decrease. It is interesting to note, however, that the balance between Canadian and foreign-initiated adjustments improved, as the last five years featured a larger percentage of Canadian-initiated adjustments.
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 2013-14 MAP report is for the CRA's year ended March 31, 2014.
Improvement in average completion times
The MAP report indicates that the average time to complete competent authority negotiations has noticeably changed since 2012-13. For 2013-14, the average completion time of Canadian-initiated adjustments, which represent more than 80% of MAP cases, decreased to 23 months (from 26 months in 2012-13). Foreign-initiated adjustments were completed in 31 months. The CRA targets completion times of 24 months for both types of cases.
The CRA's MAP process has four phases: acceptance into the program, CRA preparation of its position, the foreign authorities' evaluation of the CRA position, and finally the negotiation/resolution. Average completion times decreased for Canadian-initiated adjustments, and completion times also decreased for the CRA preparation and negotiation phases.
On foreign-initiated adjustments, the acceptance phase took longer than in 2012-13, resulting in an overall increase to the average completion time. In all cases, acceptance into the program takes longer than the CRA's one-month target.
Negotiation times vs. other phases
The MAP report shows a decrease in negotiation times for Canadian-initiated adjustments, but not for foreign-initiated adjustments. The CRA has met its targets on the position, preparation and negotiation phases, but struggles to achieve its one-month target for the acceptance phase.
Inventories of files
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. At year end, more than 89% of negotiable cases are transfer pricing cases.
The CRA's inventory of transfer pricing cases increased this year, as it accepted 23 more transfer pricing cases into the program this year than it resolved. Inventory of non-negotiable MAP cases, where a foreign tax authority is not involved, also increased to 87 (from 80). These cases largely concern withholding taxes.
Again, Canadian-initiated cases dominate the MAP process. In 2013-14, more than 80% of double tax cases were initiated in Canada compared to foreign territories. Single-year data 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, although it is reasonable to expect that the large majority of new MAP cases were initiated in Canada.
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 (38 out of 105 cases), followed by cost-plus (20 cases) and comparable uncontrolled price (CUP) (11 cases). The resale price method was used to resolve three cases in 2013-14.
Unresolved double taxation cases
The CRA did not have any unresolved cases of double taxation cases this year (down from seven in 2012-13).
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Information is current to June 26, 2014. The information contained in this publication 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