Guidance on Country-By-Country Reporting in Canada

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Guidance on Country-By-Country Reporting in Canada

Purpose of this document

The purpose of this document is to provide guidance to taxpayers affected by country-by-country reporting (CbCR) filing obligations imposed under Canadian legislation.

Unless otherwise noted, all legislative references in this document are to the Income Tax Act (the Act) or the Income Tax Regulations (the Regulations).

For ease of reference, the terms defined in subsection 233.8(1) of the Act are reproduced in Annex I. The Canadian CbCR legislation^{Footnote 1} is available at the Justice Laws Website and the accompanying Department of Finance Explanatory Notes^{Footnote 2} can be found at the Department of Finance website.

CbCR background

In October 2015, the Organisation for Economic Cooperation and Development (OECD)/G20 project on Base Erosion and Profit Shifting (BEPS) issued reports in 15 action areas. These reports contained recommendations intended to equip governments with the domestic and international instruments needed to ensure that profits are taxed where economic activities generating the profits are carried out and where value is created^{Footnote 3}. One of these reports deals with Transfer Pricing Documentation and Country-by-Country Reporting (the BEPS Action 13 Final Report) ^{Footnote 4}. The BEPS Action 13 Final Report recognized that enhancing transparency for tax administrations, by providing them with adequate information on the activities of multinational enterprises in order to conduct transfer pricing risk assessments, is an essential part of addressing BEPS.

The country-by-country report (CbC report), a component of BEPS Action 13, is a form that a large multinational enterprise group (MNE group) must file with the tax administration of the jurisdiction in which the ultimate parent entity (UPE) of the MNE group resides. A CbC report includes the global allocation, by jurisdiction, of key variables for the MNE group including: revenue, profit, tax paid, stated capital, accumulated earnings, number of employees and tangible assets, as well as the main activities of each constituent entity (CE) of the MNE group. Canada’s CbC reporting (CbCR) legislation is contained in section 233.8 of the Act.

CbC reports filed with the Canada Revenue Agency (CRA) will be automatically exchanged with other jurisdictions in which the MNE group operates (via a CE), provided that, in each case,

the other jurisdiction has implemented CbCR,
the two jurisdictions have a legal framework in place for automatic exchange of information (e.g., the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC)^{Footnote 5} or a bilateral tax treaty), and
they have entered into a competent authority agreement relating to CbCR.

First exchanges between jurisdictions of CbC reports are expected to occur by June 2018.

Similarly, the CRA will receive, via automatic exchange, CbC reports from other jurisdictions where the UPE of an MNE group is resident, if that MNE group has operations in Canada. If the CRA cannot obtain the CbC report from the jurisdiction of the UPE via automatic exchange of information, then in certain cases, section 233.8 of the Act requires a CE in Canada (that is not the UPE) to file the CbC report.

An MNE group may avoid having this filing requirement imposed on multiple CEs in multiple jurisdictions by designating one of its CEs to be a surrogate parent entity (SPE) for filing purposes. As a result of this designation, provided that the SPE is located in a jurisdiction which has implemented CbCR, the SPE will file the CbC report on behalf of the MNE group as a whole under the laws of the jurisdiction of the SPE.

Interpretation of Canadian CbCR legislation

All countries participating in the BEPS project agreed upon a CbCR implementation package. This package can be found in the BEPS Action 13 Final Report and includes model legislation for the introduction of CbCR requirements (OECD model legislation). The purpose of the implementation package, and in particular, the OECD model legislation, is to ensure a consistent and standard approach to the implementation of CbCR by all participating jurisdictions. For this reason, the Canadian CbCR legislation generally conforms to the OECD model legislation. Therefore, an understanding of the BEPS Action 13 Final Report is useful to interpreting the Canadian CbCR legislation and it should be read in conjunction with this guidance.

It should be noted that where there are differences between the OECD model legislation and the Canadian CbCR legislation, the Canadian CbCR legislation takes precedence.

Effective date of CbCR in Canada

CbCR will be required in Canada for fiscal years of MNE groups beginning on or after January 1, 2016.

As a general matter, the CRA intends to provide a reasonable degree of flexibility for MNE groups filing a CbC report in Canada in respect of their initial reporting fiscal year, where guidance or interpretation on certain issues may not have been available, and given that jurisdictions may vary in their approaches to certain issues during this period.

Excluded MNE group

CbCR requirements apply to any MNE group that has total consolidated group revenue of €750 million or more, as reflected in its consolidated financial statements, in the immediately preceding fiscal year. An MNE group with consolidated group revenue below this threshold is an excluded MNE group. See the guidance on converting consolidated gross revenues to Euros (below) if the reporting currency of the MNE group is other than Euros.

Notifications required for CbCR purposes in Canada

The reporting entity will inform the CRA at the time of filing the RC4649 Country-by-Country Report (RC4649), whether it is the UPE, the appointed SPE, or a CE of the MNE group. If the reporting entity identifies itself as the appointed SPE or a CE, the name of the UPE and its jurisdiction of residence for tax purposes must also be reported.

There is no obligation for a CE resident in Canada for tax purposes, that is either the UPE or the SPE of the MNE group, to notify the CRA in advance of filing the RC4649 that it is the reporting entity.

Additionally, there is no obligation for a CE resident in Canada for tax purposes to notify the CRA, in advance of filing the RC4649, of the name and jurisdiction of tax residence of the reporting entity.

Entities that are required to file in Canada

Under subsection 233.8(3) of the Act, the RC4649must be filed by:

the UPE of the MNE group, if it is resident in Canada in the reporting fiscal year (primary reporting mechanism); or
a CE of the MNE group, which is not the UPE, if it is resident in Canada in the reporting fiscal year, and certain conditions are satisfied (secondary reporting mechanism).

Secondary reporting mechanism

Subparagraph 233.8(3)(b)(ii) of the Act deals with the secondary reporting mechanism. This mechanism requires a CE of the MNE group that is resident in Canada for tax purposes, and which is neither the UPE nor an SPE, to file an RC4649 in certain circumstances.

The secondary reporting mechanism applies where no SPE has been appointed by the MNE group in another jurisdiction and any of the following conditions is satisfied:

the UPE of an MNE group is not required to provide a CbC report in its jurisdiction of tax residence;
the jurisdiction in which the UPE of that MNE group is resident for tax purposes does not have a qualifying competent authority agreement (QCAA) in effect with Canada (by the time for filing the RC4649 pursuant to subsection 233.8(6) of the Act) that provides for the automatic exchange of CbCR information; or
there has been a systemic failure of the jurisdiction of residence of the UPE and the CRA has notified the CE of the systemic failure.

Designation for multiple constituent entities

Where the secondary reporting mechanism applies and there is more than one CE resident in Canada for tax purposes required to file an RC4649 in respect of a reporting fiscal year, subsection 233.8(4) of the Act allows for one of those CEs to be designated to file the RC4649 on behalf of all such CEs in the MNE group. The reporting entity can inform the CRA of this designation using the RC4649 at the time of filing.

Surrogate parent entity

An MNE group may avoid having the secondary reporting requirement imposed on multiple CEs in multiple jurisdictions by designating one of its CEs to be an SPE for filing purposes. Subsection 233.8(5) of the Act allows an SPE to file a CbC report instead of the UPE. If the conditions in this subsection are met, a Canadian-resident CE that is not the UPE is not required to file an RC4649 under the secondary reporting mechanism with the CRA with respect to a reporting fiscal year.

To qualify, an SPE of the MNE group must file a CbC report in respect of the reporting fiscal year with the tax authority of its jurisdiction of tax residence on or before the time for filing. In addition, the jurisdiction of tax residence of the SPE must meet certain requirements. In particular, it must:

require filing of CbC reports;
have a QCAA in effect to which Canada is a party on or before the time for filing the RC4649, pursuant to subsection 233.8(6) of the Act, in respect of the reporting fiscal year;
not be in a position of systemic failure; and
have been notified by the SPE that it is filing as the SPE.

Obligations of a surrogate parent entity in Canada

A CE resident in Canada that is appointed as an SPE is subject to filing requirements as if that entity were a UPE in Canada. In particular, subsection 233.8(1) of the Act defines an SPE as a CE of an MNE group that has been appointed by the MNE group — in substitution for the UPE — to file the RC4649 on behalf of the MNE group, if one or more of the conditions in subparagraph 233.8(3)‍(b)‍(ii) applies (i.e., the conditions for the secondary reporting mechanism to apply).

The CE resident in Canada, which is appointed as an SPE, must notify the CRA on the RC4649 (at the time filing) that it is filing as the SPE on behalf of the UPE of the MNE group.

Deadline for filing of the RC4649 Country-by-Country Report

In accordance with subsection 233.8(6) of the Act, the RC4649must generally be filed with the CRA no later than 12 months after the last day of the fiscal year to which the report relates. For example, an RC4649for the fiscal year ended December 31, 2016 must be filed with the CRA no later than December 31, 2017.

However, if notification of systemic failure has been received by the CE, this deadline can be extended to 30 days after receipt of the notification. This takes into account situations where a CE has been informed of a systemic failure beyond the period within which it could meet the 12 month deadline.

Voluntary filing (parent surrogate filing)

Some jurisdictions do not have a legal framework in place to require an UPE resident in that country to file a CbC report for a fiscal year commencing on or after January 1, 2016. Following OECD Guidance on the Implementation of Country-by-Country Reporting: BEPS Action 13, the CRA accepts that where an UPE of an MNE group files a CbC report for its 2016 fiscal year on a voluntary basis in its country of residence (parent surrogate filing), and provided a number of conditions are met, CEs resident in Canada will not be required to file an RC4649 under the secondary reporting mechanism for that year. The conditions that must be satisfied are:

the UPE has made available a CbC report conforming to the requirements of the Action 13 Report to the tax authority of its jurisdiction of tax residence, by the filing deadline (i.e. 12 months after the last day of the reporting fiscal year of the MNE group);
by the first filing deadline of the CbC report, the jurisdiction of tax residence of the UPE has its laws in place to require CbC reporting (even if filing of a CbC report for the reporting fiscal year in question is not required under those laws);
by the first filing deadline of the CbC report, a QCAA is in effect between the jurisdiction of tax residence of the UPE and Canada; and
the jurisdiction of tax residence of the UPE has not notified the CRA of a systemic failure.

Conversion of consolidated group revenues to Euros

MNE groups that prepare consolidated financial statements in a currency other than the Euro must convert consolidated group revenues for the immediately preceding fiscal year, from the reporting currency, to Euros, for the purposes of determining if the MNE group meets the definition of excluded MNE group in subsection 233.8(1) of the Act.

Generally, relevant accounting standards^{Footnote 6} provide that income and expenses in one currency are converted to a different presentation currency using the prevailing exchange rate (i.e., the spot rate) at the dates of the transactions.

However, it may not be practical for an MNE group to convert consolidated group revenues on a transaction-by-transaction basis. Given that revenues are typically earned throughout a fiscal year, using an average exchange rate for the period (as published by the Bank of Canada^{Footnote 7}) is acceptable for the purpose of the conversion that may be required in the definition of excluded MNE group in subsection 233.8(1) of the Act.

The impact of currency fluctuations on the €750 million filing threshold

In Canada, the definition of excluded MNE group in subsection 233.8(1) of the Act sets the threshold for filing an RC4649 at €750 million. Other jurisdictions may set this threshold using a near equivalent in domestic currency. Currency fluctuations will cause differences between filing thresholds set in Euros and domestic currencies, and the following situation could arise:

The consolidated group revenues of an MNE group, with a UPE resident for tax purposes in a jurisdiction other than Canada (the other jurisdiction), do not exceed the threshold for filing set in the domestic currency of the other jurisdiction, but simultaneously exceed the €750 million threshold for filing in Canada.
The UPE of the MNE group would not be required to file a CbC report in the other jurisdiction, however any CE of that MNE group resident for tax purposes in Canada would be required to file an RC4649 pursuant to the secondary reporting mechanism of subparagraph 233.8(3)(b)(ii) of the Act.

Consistent with the OECD’s Guidance on the Implementation of Country-by-Country Reporting: BEPS Action 13^{Footnote 8} published in August 2016, where the UPE of an MNE group is resident in a jurisdiction other than Canada, provided that jurisdiction has implemented a reporting threshold that is a near equivalent of €750 million in its domestic currency as it was at January 2015, an MNE group that complies with this local threshold will not be subject to the secondary reporting mechanism in Canada.

Information to be included in the RC4649 Country-by-Country Report

The RC4649 of an MNE group must contain the following information in respect of each jurisdiction in which the MNE group operates:

on an aggregate basis:
1. amount of unrelated party revenue;
2. amount of related party revenue;
3. amount of total revenue;
4. amount of profit or loss before income tax;
5. amount of income tax paid;
6. amount of income tax accrued;
7. amount of stated capital;
8. amount of accumulated earnings;
9. number of employees;
10. value of tangible assets other than cash or cash equivalents; and
the identification of:
1. each CE carrying on a business in the particular jurisdiction;
2. each CE resident for tax purposes in the particular jurisdiction;
3. the jurisdiction under the laws of which each CE is organized where different from the particular jurisdiction; and
4. the nature of the main business activity or activities of each CE in the particular jurisdiction.

In accordance with the CbCR XML Schema: User Guide for Tax Administrations and Taxpayers published by the OECD^{Footnote 9} (the XML Schema) the RC4649 must also contain the following information:

the tax identification number (TIN) of each CE,
the issuing country of the TIN for each CE; and
the name of the city in which each CE is located.

Completing the RC4649 Country-by-Country Report

This section addresses some specific situations which may arise when completing the RC4649. Detailed instructions for completing the report also accompany the RC4649.

The reporting entity should adopt a reasonable, consistent and practical approach to completing the RC4649. It is the responsibility of the reporting entity to ensure that the RC4649 is complete and accurate, and that a reasonable effort was made by the reporting entity to obtain the necessary information from other members of the MNE group. The reporting entity may choose to use data from its consolidation reporting packages, from separate entity statutory financial statements, regulatory financial statements, or internal management accounts. Furthermore, the reporting entity should complete the RC4649 taking into account the guidance provided in the BEPS Action 13 Final Report and this guidance, having regard to the specific facts and circumstances of the reporting entity and the industry in which it operates. It is the responsibility of the reporting entity to ensure that the RC4649 is filed on time and the information provided is complete and accurate. Assumptions made in completing the RC4649 should be stated in table 3.

Reconciliation of the RC4649 Country-by-Country Report to consolidated accounts

In accordance with the BEPS Action 13 Final Report, it is not necessary to reconcile the revenue, profit and tax reported in the RC4649 to the consolidated financial statements. The requirement to disclose aggregated amounts, as opposed to consolidated amounts, implies that even where consolidated financial statements are the source of information used, the RC4649 may not reconcile with the consolidated accounts.

Table 1 – Overview of allocation of income, taxes and business activities by jurisdictions

All columns in Table 1 require the reporting entity to include aggregated results on a country-by-country basis. All amounts must be stated in Canadian dollars unless an election has been made under paragraph 261(3)(b) of the Act to report in a functional currency. All amounts on the report must be stated in one and the same currency.

Financial data related to a foreign permanent establishment of the business entity should be included in the reporting of the jurisdiction of the permanent establishment and excluded from the reporting for the tax jurisdiction of the business entity.

Tax jurisdiction

List all of the tax jurisdictions in which the CEs of the MNE group are resident for tax purposes using the country codes based on the ISO 3166-1 Alpha 2 Standard. A tax jurisdiction is defined as a State as well as a non-State jurisdiction which has fiscal autonomy and in respect of which a country code exists. The ISO 3166-1 Alpha 2 Standard country codes can be found at the following website link: http://www.iso.org/iso/country_codes

Where a CE is resident in more than one tax jurisdiction, the applicable tax treaty tie breaker rules should be applied to determine the tax jurisdiction of residence. Where no applicable tax treaty exists, the CE should be reported in the tax jurisdiction of the CE’s place of effective management. The place of effective management should be determined in accordance with the provisions of Article 4 of the OECD Model Tax Convention^{Footnote 10} and its accompanying commentary^{Footnote 11}. Additional information regarding residency can be provided in the Additional Information section of Table 3 of the RC4649.

In the case of a partnership, if it is resident for tax purposes under the laws of a specific jurisdiction, then it is considered to be resident for CbCR purposes in that jurisdiction. In any other case, it will be resident in the jurisdiction under the laws of which it was organized or arranged.

Revenues

The Canadian resident CE of an MNE group should apply the definition of revenues, taking into account the guidance provided in the BEPS Action 13 Final Report, having regard to the specific facts and circumstances of the MNE group and the industry in which it operates. Revenues should be interpreted in the broadest possible sense to include income from sales of inventory and properties, services, royalties, interest, premiums and any other amounts. Payments received from other CEs that are treated as dividends in the payor’s tax jurisdiction should be excluded.

Revenues – Unrelated* Party

Enter the sum of revenues of all the constituent entities of the MNE group in the relevant tax jurisdiction generated from transactions with independent entities. For the purposes of this form, “Revenues-Unrelated Party” should be read as referring to revenues arising from transactions between unrelated entities which deal at arm’s length.

*Not a reference to subsection 251(2) – “Related Person” of the Act.

Revenues – Related* party

Enter the sum of revenues of all the constituent entities of the MNE group in the relevant tax jurisdiction generated from transactions with associated entities. For the purposes of this form, “Revenues-Related party” should be read as referring to revenues arising from transactions between entities not dealing at arm’s length. In this column, report the aggregate amount of revenues generated from transactions with related parties for all CEs of the MNE group, for each relevant tax jurisdiction. The financial results of all intercompany transactions within the same jurisdiction must be aggregated and not consolidated. Table 3 (Additional Information) of the RC4649 can be utilised to explain levels of domestic intercompany transactions, if required.

*Not a reference to subsection 251(2) – “Related Person” of the Act.

Revenues – Total

Enter the total of the amounts reported for unrelated and related parties.

Profit or Loss before income tax

Enter the sum of the profit or loss before income tax for all CEs resident for tax purposes in the relevant tax jurisdiction. The profit or loss should include all extraordinary income and expense items.

Income tax paid (on a cash basis)

Enter the total amount of income tax actually paid during the relevant fiscal year by all CEs resident for tax purposes in the relevant tax jurisdiction. Income taxes paid should include taxes paid by the CE to the residence tax jurisdiction and to all other tax jurisdictions. Taxes paid should include withholding taxes paid by other entities (associated/related parties and independent/unrelated parties) with respect to payments to the CE. For example, if company A resident in tax jurisdiction A earns interest in tax jurisdiction B, the tax withheld in tax jurisdiction B should be reported by company A.

Income tax accrued – current year

Enter the sum of the accrued current tax expense recorded on taxable profits or losses of the year of reporting of all CEs resident for tax purposes in the relevant tax jurisdiction. The current tax expense should reflect only operations in the current year and should not include deferred taxes or provisions for uncertain tax liabilities.

Stated capital

Enter the sum of the stated capital of all CEs resident for tax purposes in the relevant tax jurisdiction. With regard to permanent establishments, the stated capital should be reported by the legal entity of which it is a permanent establishment unless there is a defined regulatory requirement in the permanent establishment tax jurisdiction to report the stated capital in that jurisdiction.

Accumulated earnings

Enter the sum of the total accumulated earnings of all CEs resident for tax purposes in the relevant tax jurisdiction as of the end of the year. With regard to permanent establishments, accumulated earnings should be reported by the legal entity of which it is a permanent establishment.

Number of employees

Enter the total number of employees on a full-time equivalent basis of all CEs resident for tax purposes in the relevant tax jurisdiction. The number of employees may be reported as of the year-end, on the basis of average employment levels for the year or on any other basis consistently applied across tax jurisdictions and from year to year. For this purpose, independent contractors, their employees, and seconded employees participating in the ordinary operating activities of the CE should be reported as employees. Reasonable rounding or approximation of the number of employees is permissible, providing that such rounding or approximation does not materially distort the relative distribution of employees across the various tax jurisdictions. Consistent approaches should be applied from year to year and across entities.

Tangible assets other than cash and cash equivalents

Enter the sum of the net book values of tangible assets of all CEs resident for tax purposes in the relevant tax jurisdiction. With regard to permanent establishments, assets attributable to the permanent establishment should be reported by reference to the tax jurisdiction in which the permanent establishment is situated and not by reference to the tax jurisdiction of residence of the business entity of which the permanent establishment is a part. Tangible assets for this purpose do not include cash or cash equivalents, intangibles or financial assets.

TABLE 2 – List of all the CEs of the MNE group included in each aggregation per tax jurisdiction

Tax jurisdiction

For information on tax jurisdictions, refer to the instructions for Table 1 above. This list of tax jurisdictions should reflect those listed in Table 1.

Name of the CEs resident in the tax jurisdiction

The reporting entity must list, by legal entity name, all of the CEs of the MNE group on the basis of tax jurisdiction. With regard to permanent establishments, the permanent establishment should be listed by reference to the tax jurisdiction in which it is situated and not by reference to the tax jurisdiction of residence of the business entity of which the permanent establishment is a part (e.g. XYZ Corp – Tax Jurisdiction A-PE).

Name of the city of the address of the CE

Enter the city name of the address of the CE.

Country code of the country of the address of the CE

Enter the country code of the country of the address of the CE using the ISO codes noted above.

Tax identification number (TIN) of CEs

Enter the tax identification number used by the tax administration of the tax jurisdiction of residence of the CE. When the relevant CE has a TIN that is used by the tax administration in its tax jurisdiction of residence, such TIN is to be mandatorily provided. When a CE does not have a TIN, the value “NOTIN” must be entered. This field must not be left blank.

Country code of the TIN

Enter the country code of the tax jurisdiction that issued the TIN. This country code must be provided when a TIN exists.

Tax jurisdiction of organization or incorporation if different from tax jurisdiction of residence

Enter the country code of the tax jurisdiction under whose laws the CE of the MNE group is organized or incorporated if it is different from the tax jurisdiction of residence.

Main business activities

Enter the main business activity or activities carried out by the CE in the relevant tax jurisdiction. If the business activity chosen is “Other”, a description of the nature of the activity must be provided in the “Other Information” section.

TABLE 3 – Additional information

Other information or explanations may be entered that would further the understanding of the mandatory information provided in the RC4649, including the assumptions that were made when compiling the information and the accounting rules applied.

Fiscal years less than 12 months

Where the accounting period of an MNE group is less than 12 months, the time for filing the RC4649 generally remains the same i.e. 12 months after the last day of the reporting fiscal year.

In the determination of whether an MNE group is an excluded MNE group for a particular fiscal year, where the fiscal year immediately preceding the particular fiscal year is less than 12 months, the threshold of €750 million should be prorated accordingly.

Change of UPE during a fiscal year

The UPE is always identified by reference to the last day of the fiscal year to which the CbC report relates. Therefore, for an MNE group with a fiscal year end of December 31, 2016, the UPE is identified by reference to the date of December 31, 2016.

It should be noted that the UPE of an MNE group may change from one fiscal year to the next or part way through a fiscal year as a result of a restructuring of the MNE group, e.g. a takeover. An MNE group should be cognisant of the impact of changing the UPE may have on CbCR obligations, in particular, where the jurisdiction of tax residence of the UPE changes. Where a change in the UPE of an MNE group occurs, the MNE group should carefully review its obligations with regard to making notifications and filing CbC reports. In particular, where the UPE of an MNE group, that is not an excluded MNE group, changes in a fiscal year, the CRA expects the following to apply:

The UPE of the acquired MNE group should file a CbC report including data for that MNE group up to the date of takeover.
The parent entity of the acquirer MNE group should file a CbC report as normal for its fiscal year. That CbC report will include data for the CEs of the acquired MNE group from the date of acquisition until the end of the fiscal year.

Rules for investment funds

Guidance on the Implementation of Country-by-Country Reporting: BEPS Action 13 confirms that the application of CbCR to investment funds will depend on the relevant accounting treatment. The governing principle is to follow the accounting consolidation rules.

If, applying accounting rules, an investment entity does not consolidate investee companies, then those investee companies should not form part of an MNE group and should not be considered CEs. However, if the accounting rules require that the investment entity consolidates with an investee company, the investee company should be part of an MNE group (where one exists) and should therefore be considered a CE.

Filing an RC4649 Country-by-Country Report with the CRA

Electronic filing of the RC4649 by corporations may be done using CRA certified software. A version of the RC4649 that can be filed physically by partnerships and trusts is available on the CRA website in 2017. File this report separately from the tax return.

If filing a paper version, mail the original or amended return, and any related information to:

International Programs Section

International Tax Division

Canada Building 6th floor

344 Slater St., Ottawa, ON K1A 0L5

Penalties

Penalties may be applicable to the filing of an RC4649 in Canada under the following legislative provisions:

Subsection 162(5) of the Act

Subsection 162(5) of the Act provides a penalty for the failure of any person to provide any information required on a prescribed form made pursuant to the Act or the Regulations. The penalty for the failure to provide the information is $100, and is applicable to each such failure.

Subsection 162(7) of the Act

Subsection 162(7) of the Act provides a penalty for the failure to file an information return as and when required by the Act and for the failure to comply with a duty or obligation imposed under the Act or the Regulations. The penalty is equal to $25 per day of default, subject to a $100 minimum and a $2,500 maximum.

Paragraphs 162(10)(a) and (b) of the Act

The penalty under subsection 162(10) of the Act applies in two mutually exclusive situations described by paragraphs 162(10)(a) and (b). The first situation arises where a person or partnership, knowingly or under circumstances amount to gross negligence, fails to file an information return as and when required by any of sections 233.1 to 233.4 or section 233.8. Where no demand has been served under section 233 to file the return, the penalty is $500 per month for up to 24 months. If a demand is served and not complied with, the penalty is $1,000 per month. It begins to run from the month in which the return was required to be filed.

The second situation arises where a person or partnership required to file a return under any of sections 233.1 to 233.4 or section 233.8 has, knowingly or under circumstances amounting to gross negligence, failed to comply with a demand served under section 233 to file the return. The penalty in this case is $1,000 per month for up to 24 months. It begins to run from the month in which the demand was served.

Automatic exchange of CbCR information

Assuming the secondary reporting mechanism does not apply, where the reporting entity is not resident in Canada for tax purposes, CRA will receive CbCR information from the competent authority in the jurisdiction in which the reporting entity is tax resident.

Subparagraph 241(4)(e)(xii) of the Act allows CRA to exchange CbCR information with the competent authorities of other jurisdictions under certain international agreements that authorize the exchange of taxpayer information between the jurisdictions. On the basis of the information in the RC4649, where certain conditions are met and one or more CEs of the MNE group are either resident for tax purposes, or are subject to tax with respect to the business carried out through a permanent establishment in another jurisdiction, CRA will automatically exchange the CbCR information with that jurisdiction.

Conditions for automatic exchange of CbCR information

CbCR information can only be automatically exchanged between jurisdictions when a QCAA is in effect between the jurisdictions. In Canada, a QCAA is an agreement between authorized representatives of those jurisdictions that are parties to a listed international agreement (which is defined in subsection 248(1) of the Act) that requires the automatic exchange of CbCR information between jurisdictions.

In most cases, the exchange of CbCR information is expected to take place under the MAC, as amended by 2010 Protocol and the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbC-MCAA)^{Footnote 12}. As at January 26, 2017, 57 jurisdictions (including Canada) have signed the CbC-MCAA and more countries are expected to sign. A current list of the jurisdictions that have signed the CbC-MCAA can be found on the OECD website^{Footnote 13}.

Conditions for automatic exchange of CbCR information with the United States

The United States has announced that it intends to enter into competent authority arrangements for the automatic exchange of CbC reports with jurisdictions with which it has an income tax treaty or tax information exchange agreement. The United States has indicated that it is committed to entering into bilateral competent authority arrangements with respect to CbC reports in a timely manner, taking into consideration the need for appropriate review of systems and confidentiality safeguards in the other jurisdictions^{Footnote 14}.

CRA considers that, when in effect, a bilateral competent authority agreement with the United States made to effectuate the automatic exchange of CbCR information under the Canada –United States Income Tax Convention will constitute a QCAA.

Confidentiality of CbCR information

Section 241 of the Act provides that all taxpayer information is confidential and may only be disclosed in accordance with the law. The information contained on CbC reports will be treated in the same manner as all other taxpayer information in CRA’s possession.

Although the CbC-MCAA is a multilateral agreement, the automatic exchange of CbCR information will be made on a bilateral basis as the CbC-MCAA includes a mechanism that allows each jurisdiction to retain control over which jurisdictions they agree to exchange CbCR information with. Canada will automatically exchange CbCR information with only jurisdictions that are committed to using the information appropriately and preserving its confidentiality. Pursuant to section 8 of the CbC-MCAA, Canada will notify the OECD (as provided for in Article 24 of the MAC) of the jurisdictions with which it intends to automatically exchange CbCR information. If any such jurisdiction also listed Canada as an intended CbCR exchange partner, the CRA will be obliged under the CbC-MCAA to exchange CbCR information with the matched jurisdiction. The OECD will maintain a published list which will reveal with whom Canada and other committed jurisdictions are exchanging CbCR information under the CbC-MCAA.

In addition, the CbC-MCAA provides that all information exchanged is subject to the confidentiality rules and other safeguards provided for in the MAC. The MAC generally provides that information must be treated as secret and only used by tax officials for tax purposes.

Appropriate use of CbCR information

The BEPS Action 13 Final Report sets out three permitted uses for information contained in CbC reports, namely:

to assess high level transfer pricing risk;
to assess other BEPS-related risks; and
for economic and statistical analysis.

Canada is committed to using information provided on CbC reports in accordance with only the uses permitted in the BEPS Action 13 Final Report. CRA will not use CbCR information, by itself, to make reassessments to the income of a taxpayer for the purposes of the Act.

The BEPS Action 13 Report requires that the information contained in the CbC reports not be used as a substitute for a detailed transfer pricing analysis of individual transactions and prices based on a full functional analysis and full comparability analysis. The information in a CbC report on its own does not constitute conclusive evidence that transfer prices are or are not appropriate, and should not be used to propose transfer pricing adjustments based on a global formulary apportionment of income.

RC4649 Enquiries

Questions with respect to filing an RC4649 can be submitted to:

Country-by-Country Reporting Enquiries / Demandes de renseignements pour les Déclarations pays par pays (CRA/ARC)

This provisional service is intended to provide assistance to reporting entities filing an RC4649 with the CRA pursuant to section 233.8 of the Act. Media enquiries, enquires from other domestic or foreign governmental organizations, and any other enquiry beyond the intended purpose of this service will receive a nil response.

Annex I

Subsection 233.8(1) of the Act– Definitions

For ease of reference, the definitions in subsection 233.8(1) on the Act have been provided below.

Business entity

Business entity means:

a person (other than an individual that is not a trust) or partnership; and
a business that is carried on through a permanent establishment, if a separate financial statement for the business is prepared for financial reporting, regulatory, tax reporting or internal management control purposes.

Consolidated financial statements

Consolidated financial statements means financial statements in which the assets, liabilities, income, expenses and cash flows of the members of a group are presented as those of a single economic entity

Constituent Entity

Constituent entity, of an MNE group, means

any business entity of the MNE group that
1. is included in the consolidated financial statements of the MNE group for financial reporting purposes, or
2. would be required to be included if equity interests in any of the business entities in the MNE group were traded on a public securities exchange; and
any business entity that is excluded from the MNE group’s consolidated financial statements solely because of size or materiality.

Excluded MNE group

Excluded MNE group means two or more business entities that meet the conditions in paragraphs (a) and (b) of the definition of MNE group, if, with respect to a particular fiscal year of the MNE group, it has a total consolidated group revenue of less than €750 million during the fiscal year immediately preceding the particular fiscal year, as reflected in its consolidated financial statements for the preceding fiscal year.

Fiscal year

Fiscal year, of an MNE group, means an annual accounting period with respect to which the ultimate parent entity of the MNE group prepares its financial statements.

Multinational enterprise group or MNE group

Multinational enterprise group or MNE group means two or more business entities, if

they are either required to prepare consolidated financial statements for financial reporting purposes under applicable accounting principles or would be so required if equity interests in any of the business entities were traded on a public securities exchange;
one of the business entities is resident in a particular jurisdiction and
1. another business entity resides in a different jurisdiction, or
2. is subject to tax in a different jurisdiction with respect to a business carried on by it through a business entity — described in paragraph (b) of the definition business entity — in that other jurisdiction; and
they are not an excluded MNE group.

Permanent establishment

Permanent establishment has the meaning assigned by the Regulations.^{Footnote 15}

Qualifying competent authority agreement

Qualifying competent authority agreement means an agreement that

is between authorized representatives of those jurisdictions that are parties to a listed international agreement, and
requires the automatic exchange of country-by-country reports between the party jurisdictions.

Reporting fiscal year

Reporting fiscal year means a fiscal year, if the financial and operational results of the fiscal year are reflected in the country-by-country report.

Surrogate parent entity

Surrogate parent entity means a constituent entity of an MNE group that has been appointed by the MNE group — in substitution for the ultimate parent entity — to file the country-by-country report on behalf of the MNE group, if one or more of the conditions in subparagraph (3)(b)(ii) applies.

Systemic failure

Systemic failure means, with respect to a jurisdiction, that the jurisdiction has a qualifying competent authority agreement in effect with Canada, but

has suspended automatic exchange (for reasons other than those that are in accordance with the terms of the agreement); or
has persistently failed to automatically provide country-by-country reports in its possession — in respect of MNE groups that have constituent entities in Canada — to Canada.

Ultimate Parent Entity

Ultimate parent entity means a constituent entity of an MNE group that meets the following conditions:

the constituent entity holds directly or indirectly a sufficient interest in one or more constituent entities of the MNE group so that it is required to prepare consolidated financial statements under accounting principles generally applied in its jurisdiction of residence, or would be so required if its equity interests were traded on a public securities exchange in its jurisdiction of residence; and
no other constituent entity of the MNE group holds, directly or indirectly, an interest in it that is described in paragraph (a).

Footnotes

Footnote 1

Section 233.8 of the Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

http://laws-lois.justice.gc.ca/eng/acts/I-3.3/index.html

Return to footnote 1 referrer

Footnote 2

Explanatory Notes Relating to the Income Tax Act, Excise Tax Act, Excise Act, 2001 and Related Legislation

https://www.fin.gc.ca/drleg-apl/2016/ita-lir-0716-n-eng.pdf

Return to footnote 2 referrer

Footnote 3

Base Erosion and Profit Shifting

http://www.oecd.org/tax/beps/beps-actions.htm

Return to footnote 3 referrer

Footnote 4

Transfer Pricing Documentation and Country-by-Country Reporting, Action 13 - 2015 Final Report (OECD 2015)

http://www.oecd.org/tax/transfer-pricing-documentation-and-country-by-country-reporting-action-13-2015-final-report-9789264241480-en.htm

Return to footnote 4 referrer

Footnote 5

Multilateral Convention on Mutual Administrative Assistance in Tax Matters

http://www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm

Return to footnote 5 referrer

Footnote 6

International Accounting Standard (IAS) 21 – the effects of changes in foreign exchange rates, paragraph 39(b) The results and financial position of an entity […] shall be translated into a different presentation currency using the following procedures:(a)[…]; (b) income and expenses for each statement presenting profit or loss and other comprehensive income (i.e. including comparatives) shall be translated at exchange rates at the dates of the transactions.

Return to footnote 6 referrer

Footnote 7