10 June 2011 Roundtable, 2011-0408111C6 - Journée d'études fiscales - Round Table-CTF

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: Questions number 6, 8, 11 and 13 of the CTF's Round Table held in Montreal on June 10, 2011.

Journée d'étude fiscale
Fondation Canadienne de Fiscalité / Canadian Tax Foundation
Table ronde / Round Table
Montreal - June 10, 2011

Question 6: Voluntary disclosures program (VDP).

CRA has recently informally announced new rules regarding to the VDP. Can you tell us what is the CRA's position with respect to the subsection 220(3.1) 10 years limit? In other words, can you confirm that CRA would accept a file where the capital which generated non disclosed income has not been disclosed for more than 10 years?

CRA response:

The VDP is growing in popularity as a viable option for taxpayers to correct their tax affairs. In 2010-2011, the VDP received over 13000 disclosures generating over $600M in additional federal tax.

In late 2008, the CRA made changes to the VDP in Quebec to align the program with all of Canada. In October 2010, the CRA made a presentation to the APFF in relation to the VDP.

Taxpayers must explain how they meet the four VDP conditions. A taxpayer must disclose the entire story surrounding the non-compliance. That is all years and all unreported income must be included as part of the initial disclosure. Only after reviewing the entire story can the CRA determine which years will require a (re)assessment. This can only be done on a case by case basis and taking into account the materiality of the amounts disclosed.

There are no legislative restrictions to assessing any year if the adjustments are in line with the applicable legislation. We will apply the legislation as it relates to statute-barred years and assess income in the year it was earned. As a result, the CRA will not provide assurances that they will not assess beyond 10 years. With regards to penalty and interest relief, the legislation limits such relief to the preceding 10 years.

If we identify that a disclosure is not complete then there may be consequences. Don't come forward with half the information. If we suspect there is income which has not been disclosed, we will ask more questions, gather more information and possibly open additional years, with the possibility of penalties being added. We will also cross-reference amounts disclosed from third-party information at our disposal. If the disclosure is incomplete, it could be denied and referred to audit. Please ensure we get the complete story up front.

Prepared by:
Kurt Laporte
CPB-DGPO
Enforcement and Disclosures Directorate

Question 8: Canada-Switzerland Tax Treaty

Please provide an update on the status of the arbitration procedures pursuant to the Canada-Switzerland Tax Treaty.

CRA response:

The Protocol to the Canada-Switzerland Tax Treaty was signed on October 22, 2010, but has not yet entered into force. Once it enters into force, the Competent Authorities will be in a position to develop the rules and procedures which will be agreed upon by the Contracting States in an exchange of notes through diplomatic channels. As provided in Article XIII, paragraph 2(b), the diplomatic notes will also specify the effective date of the arbitration provision.

Prepared by:
Karen Brodmann
International, Provincial and Strategic Policy Division
Legislative Policy Directorate
Legislative Policy and Regulatory Affairs Branch

Question 11: Transfer pricing error

Please explain the procedures a taxpayer should follow when wishing to self-adjust for a prior period transfer pricing error.

CRA response:

The mechanism for a taxpayer to request for a reassessment to its income tax return (including transfer pricing adjustments) is by writing a letter to the tax centre where the T2 return is normally filed ensuring to include all relevant details and supporting documentation related to the prior period transfer pricing issue. Additional information on the general rules related to a reassessment of an income tax return can be found in CRA Information Circular 75-7R3.

In addition, according to subsection 247(10) of the Income Tax Act, any requests for a transfer pricing adjustment which results in a decrease to the Canadian taxpayer's income (also known as a "downward transfer pricing adjustment") must be considered appropriate in the opinion of the Minister or the officers delegated by the Minister to perform this duty. Any net downward transfer pricing adjustments for a tax year less than $5,000,000 are referred to the Director of the Tax Services Office for approval while any net downward transfer pricing adjustments in excess of $5,000,000 or as a result of an adjustment made to the related non-resident by a tax authority with which Canada has a tax treaty are referred to the Director General of the International and Large Business Directorate at Headquarters for approval.

Further information on the issue of downward transfer pricing adjustments may be found in CRA Transfer Pricing Memorandum, TPM-03.

Prepared by:
Jennifer Ryan
International Tax Division
International and Large Business Directorate
Compliance Programs Branch

Question 13: Transfer pricing memoranda

Please provide an update regarding any new transfer pricing memoranda or Income Tax Technical News.

CRA response:

Regular updates on a number of topics directly related to transfer pricing may be found in the Transfer Pricing Memorandum (TPM) series of documents. The International Tax Division of Headquarters is currently reviewing its procedures for policy development with a focus on internal communiqués at this time. Additional updates to the TPMs may follow as a result of this review process.

Prepared by:
Jennifer Ryan
International Tax Division
International and Large Business Directorate
Compliance Programs Branch

Isabelle Landry
2011-040811
June 10, 2011