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: Advance Pricing Agreement Program
Has there been a change in CRA's policy on the availability of the Advance Pricing Agreement Program or changes in the criteria for acceptance into the program?
Position: See response.
2011 TEI-CRA Liaison Meeting
December 6, 2011
Question 6 - Advance Pricing Agreement Program
The APA program is highly valued by taxpayers because it provides certainty about the taxation of intercompany transactions. We understand that there has been a marked decline in the rate of acceptance of applicants into the APA program by the Competent Authority Services Division. We invite CRA's comments on whether there has been a change in its policy on the availability of the APA Program or changes in the criteria for acceptance into the program.
In the past year (2010-11), only six applications were withdrawn at the pre-file stage. We do not capture and report on reasons for withdrawals but note that this could be the result of either a taxpayer's decision or in response to the CRA's request. Withdrawals at the pre-file stage are to be expected - the primary objective of the pre-file meeting is to provide an opportunity to both the taxpayer and the CRA to explore the suitability of the APA program based on taxpayer needs, its cooperation and the proposed covered transactions. However, some of the taxpayers who have withdrawn can re-submit their applications should they decide to proceed and agree to provide the information requested by the CRA.
The APA program is a discretionary administrative service available to taxpayers who desire future certainty for the tax treatment of transfer pricing of inter-company transactions with related enterprises. Unlike the Mutual Agreement Procedure (MAP) program, which is a right granted by the tax treaty and must be provided by the CRA, the APA program is a voluntary service provided by the CRA. Given the discretionary nature of the service, the CRA may not be able to accommodate all APA requests, as its ability to provide service is based on the availability of resources.
Drawing from our experience, it is prudent on our part to make an informed assessment of the potential for a successful resolution of an issue and to provide the necessary feedback before the taxpayer devotes substantial resources to the preparation of an APA submission and before the CRA commits its limited resources. Therefore, we have increased our due diligence prior to deciding to accept taxpayers into the APA program.
For the program to be successful, it requires unfettered cooperation of taxpayers and free flow of information. To use the existing resources more efficiently, the CRA is encouraging taxpayers at the pre-file stage to provide a more thorough explanation of their proposed transactions and corresponding transfer pricing methodologies in order for the CRA to evaluate their appropriateness.
For example, a taxpayer's submission must contain the rationale and support for the proposed transfer pricing methodology and the taxpayer must be open to the consideration of alternative methodologies and/or transactions. It is the CRA's practice to question any methodology or transaction where the rationale is lacking in the APA application.
Further, our increased due diligence at the pre-file stage includes asking for more information on certain types of transactions, including transactions involving intangibles, to make an informed decision about whether to accept or reject an APA request. We are providing more feedback during and after the pre-file meeting with the intention of helping taxpayers come up with a balanced and complete submission.
Lastly, we have recently confirmed, in response to queries from accounting and legal representatives, that the CRA will not accept business restructuring transactions or the valuation/ownership issues that result from a restructuring during or before the APA period. We have determined that business restructuring cases are not suitable for an APA as they do not cover recurring and unchanging transactions where the underlying assumptions that form the basis of an APA transfer pricing methodology do not change over the duration of both the immediate pre-APA period and the APA period itself. The CRA requires a certain stable cycle or period of time without a significant event in order to work an APA file. Without this stability we are unable to conduct a proper analysis.
In our view, the more rigorous screening of APA applications, including increased information requirements and the elimination of business restructuring and valuation/ownership issues, is a reasonable CRA response to increased taxpayer demand in the current environment of fiscal restraint and limited resources. It is also our view that such an approach is in line with the intent of the APA program as described in the CRA's Information Circular 94-4R International Transfer Pricing: Advance Pricing Arrangements (APAs).
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2011
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2011