6 December 2011 Roundtable, 2011-0427231C6 - 2011 TEI-CRA Liaison Meeting: Qu. 1

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Question 1 of this meeting follows up on questions raised in prior years, including issues relating to international tax forms simplification, the Advisory Panel on Canada's System of International Taxation, partnership returns and My Business Account.

Position: See Response.

2011 TEI-CRA Liaison Meeting
December 6, 2011

Question 1 - Follow-up Questions from Prior Years

a) International Tax Forms Simplification

In response to Question 6 of the 2009 liaison meeting agenda, CRA said that it was reviewing the scope and content of various forms, including Forms T1134A and B. In a follow-up question during the 2010 liaison meeting, CRA said that consultations with stakeholders about potential changes to the forms were continuing. We invite an update on the status of CRA's review and a discussion of potential revisions to various forms, especially Forms T1134A and B.

CRA Response

Forms T1134A and B have been reviewed by external and internal stakeholders. The forms are in the final stages and will be released soon.

Revisions to the Form T1134A include:

• The filing thresholds remain unchanged however the meaning of the term "gross receipts" has been clarified to include all receipts (such as loans), not just income amounts.
• Links to the official list of NAICS codes on the Statistics Canada website and the NR4 guide T4061 for the list of country codes. This eliminates the additional pages on the form.
• Functional currency: Similar to the T106, the T1134 forms include a single area on the front of the form with instructions in regards to the functional currency election.
• Actual amounts for the foreign affiliate's gross revenue are required instead of selecting a set revenue range.

Revisions to the Form T1134B include:

• Similar changes to Form T1134A
• Part III, Section 3 (x), FAPI under the description of C in the definition of FAPI in subsection 95(1) of the Act, was deleted per the change in legislation.
• Added lines under Part III, Section 5 related to subparagraphs 95(2)(a)(v) and 95(2)(a)(vi) per the change in legislation. (New subparagraph 95(2)(a)(v) relates to "excluded property" and 95(2)(a)(vi) relates to transactions involving currency and foreign exchange risks.)

b) Advisory Panel on Canada's System of International Taxation: Large Corporations and Double Taxation Cases

Paragraph 7.24 of the Report by the Advisory Panel on Canada's System of International Taxation states:

Rules regarding tax prepayment or security and deficiency interest in transfer pricing cases should differ from the general rules applying to other tax cases because, in double taxation cases, tax has already been paid to another government in respect of that amount.

In Question 11 of the 2009 liaison meeting, TEI observed that CRA's Legislative Policy and Regulatory Affairs branch was understood to be reviewing the Advisory Panel's recommendations, including the requirement to prepay 50 percent of the disputed tax prior to seeking competent authority relief. In response, CRA said its working group's deliberations were "ongoing." In response to a follow-up question last year, CRA reported that its deliberations had not yet concluded.

Would CRA (i) update TEI on the working group's status and its current thinking (especially about the requirement that large corporations prepay 50 percent of the disputed tax prior to seeking competent authority relief) and (ii) comment on CRA's next steps in the evaluation of the administration of the current system of international taxation?

CRA Response

i) The OECD tax collection position as stated in its "Transfer Pricing Guidelines for Multinational Enterprises ("MNE") and Tax Administration" recommended that countries that do not have procedures to suspend collection during Mutual Agreement Procedure (MAP) negotiations are encouraged to adopt them where permitted by domestic law, although subject to the right to seek security as protection against possible default by the taxpayer.

The CRA in support of these OECD recommendations, and to the extent permitted by domestic law, adopted a policy to allow large corporations to provide acceptable security, in lieu of payment, when the Canadian based MNE sought the assistance of the Competent Authority for potential double taxation or taxation not in accordance to the Convention. The CRA's acceptance of security policy in this matter thereby removes the immediate payment obligation, potential refunding issues, and any significant economic and financial burden placed on MNE groups where part of the domestic adjustment resulted in a tax assessment that may have been paid previously in another jurisdiction. Additionally, by accepting security in lieu of the 50% payment requirement towards the Part I tax assessment associated with MAP cases, the CRA mitigates a portion (50%) of the revenue risk and protects the tax base from possible default by the MNE until the matter is finally determined.

ii) The CRA working group has done as much as it can do with each recommendation of the Transfer Pricing Subcommittee. The working group's next steps are to roll up and release its responses.

c) Partnership Returns

In Question 5(c) of the 2010 liaison meeting, TEI inquired whether CRA kept a log of return filings so that a partnership can obtain an acknowledgement of the fact of filing its return. CRA advised that it would "consider a paper notification process as part of the on-going development of Information Returns" in order to advise when a partnership return had been received and processed. We invite an update on the status of CRA's efforts to provide a notification process for partnership returns.

CRA Response

We are not currently pursuing a paper notification process to inform partnerships of the receipt of T5013 returns. Instead, we are working on an online solution through the MyBA portal that would allow partnerships to view the status of returns that have been filed. We won't have this process in place for the 2011 filing year, but we expect to have it in place for the 2012 filing year.

d) My Business Account

In response to Question 14 about "My Business Account" in the 2008 liaison meeting, CRA acknowledged that the system was designed with small business users in mind and that it was working on system enhancements for large businesses. In a follow-up meeting between representatives of CRA and TEI, a number of issues were discussed, including the need to balance proper authentication controls for users (including who within a corporate tax department should be able to access or view what information) with safeguards for the taxpayer and CRA (especially around transfers of funds among accounts); CRA said that making the system changes envisioned might require several years. TEI invites a discussion on the progress CRA has made in making "My Business Account" more usable by large file taxpayers.

CRA Response

Complementing the suite of information and services available within My Business Account, the CRA has expanded the flexibility and controls available to large businesses using our secure online services. Represent a Client, the portal for all third parties including employees of large businesses, has added tools to more easily manage the access of employees to information and services. These tools include the ability to manage the access of groups of employees without the need for new authorizations. Represent a Client has also extended the accountability and transparency of third party interactions with the CRA by enabling businesses to view the activities performed by third parties (including employees) on their behalf. We are confident these enhancements will meet the needs of large businesses and welcome your feedback.

This issue was previously identified by TEI in the 2008 Questionnaire and the CRA responded that it was premature to assess the scope of this request without TEI sharing stakeholder reports with the CRA. Further, consultations with representatives of TEI on February 28, 2011 allowed the CRA to identify gaps in service for several account concerns and begin evaluating potential solutions. Over the next year, the CRA is conducting a feasibility study from an account perspective of what type of complex account-level activities might suggest a need for additional service offerings. In this regard, it would be helpful to have a few key individuals from your organization meet with representatives of the Business Accounting Division to explore the account specific issues your stakeholders may have.

Background Information regarding CMS

The CRA is committed to enhancing the suite of secure electronic services available to Business, Individuals and Representatives (which includes employees of businesses). However, the security and protection of confidential tax information is one of the CRA's highest priorities when we offer electronic services. Currently, our electronic services allow business owners, individuals and authorized representatives to view detailed information on tax assessments, changing an income tax return or address, as well as viewing, modifying or deleting direct deposit information.

As these services are very sensitive in nature, we must adopt security technology and procedures that are appropriate for the services offered. Accordingly, CRA procedures for accessing our more secure services include establishing a user's identity, including that of representatives, using existing CRA information.

Business owners, for instance, must identify themselves by providing their social insurance number, date of birth, postal code and the dollar amount of a specific tax line on their income tax return. In addition, they are mailed to their personal mailing address a CRA security code, which they must then enter when logging in for the first time. In the case of representatives, including employees of businesses, the CRA establishes their identity by asking them to provide the Access Code from their personal Notice of Assessment as well as their postal code.

It is important for the CRA to know the identity of all individuals accessing confidential information, even if it is on behalf of another taxpayer or business. By providing this information, the user is identifying them self as the one who will be accessing another individual's or businesses tax information online. Once this process is completed, the CRA provides representatives with a Rep ID which individuals or businesses use to authorize them to act on their behalf. It should be noted that the personal information provided by representatives to identify themselves with the CRA is not disclosed/linked to any individual or business that authorizes them to act on their behalf.