The CRA's 2021 report on its Mutual Agreement Procedure (MAP) Program is now available. Taxpayers with cross-border business or financial dealings may be interested in this report, since it covers the CRA's administration of the MAP program, which is intended to resolve cases of double taxation. This new report highlights that the CRA closed more MAP cases in 2021 compared to 2020, but took more time to complete each case on average (over 20 months).
The report shows that most negotiable MAP cases involve taxpayers from the United States (i.e., in over 39% of cases), although the CRA is engaged in cases involving taxpayers from 30 different jurisdictions.
Background
The CRA's MAP program is designed to help taxpayers resolve cases of double taxation, or taxation that does not agree 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 Organization for Economic Co-operation and Development (OECD) also publishes MAP statistics on an annual basis and further breaks the MAP caseload down by each jurisdiction, including Canada.
The CRA also has an APA program, which is different from the MAP program. The APA program provides taxpayers with advance confirmation of the appropriate transfer pricing methodology to apply to specific intercompany transactions for a specified term, and offers certain advantages to taxpayers.
Completed cases
According to the report, the CRA had 167 negotiable MAP cases on January 1, 2021 and accepted 109 new MAP cases during the year. The CRA also closed 81 MAP cases (up from 74 in 2020). Canadian-initiated cases continue to dominate the MAP process, with 79% of completed cases being initiated in Canada in 2021.
The 2021 MAP report indicates that the CRA took an average of 23.3 months to complete a negotiable MAP case in 2021 (up from 17.8 months in 2020). The CRA concluded Canadian-initiated cases in 20.3 months (down from just over 25 months in 2020) and foreign-initiated cases in 34.7 months (up significantly from just over 11 months in 2020), on average. The CRA targets completion times of 24 months for both foreign and Canadian initiated adjustments.
Relief obtained
The CRA notes that the taxpayer in 36 out of the 81 cases closed in 2021 (44.5%) received full relief from double taxation. In 11 cases (13.6%) the taxpayer received unilateral relief, and in 10 cases (12.3%) the case was resolved domestically. In the remaining 24 cases (29.6%), the taxpayer either received partial relief, withdrew the case, had objections not justified, resulted in no agreement, or were denied MAP access, among other outcomes.
Inventories of files
At year-end, 68% of negotiable cases were transfer pricing cases. The CRA's inventory of transfer pricing cases increased slightly in 2021 to 132 (from 129). The CRA accepted 57 new cases and completed 54 cases. The average time to complete these transfer pricing cases were over 20.6 months for those started post-2015 and over 84.8 months for those started pre-2016.
The CRA's non-negotiable MAP cases (where the foreign tax authority is not involved) increased significantly to 656 cases in 2021 (from 318 in 2020), largely because the CRA stated it would accept retroactive elections for certain pensions in Income Tax Folio S5-F3-C1, “Taxation of a Roth IRA”, which was published on January 9, 2021.
For more information, contact your KPMG adviser.
Information is current to June 5, 2023. 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
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