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Canada Praised After BEPS Minimum Standard Peer Review

by Mike Godfrey,, Washington

06 October 2017

Canada is largely compliant with the BEPS minimum standard on improving tax dispute resolution, one of the first ever OECD peer reviews has found, but it needs to make a number of changes to be regarded fully compliant.

Under Action 14 of the BEPS project, countries have committed to implement a minimum standard to strengthen the effectiveness of the Mutual Agreement Procedure (MAP). The MAP is included in Article 25 of the OECD Model Tax Convention and commits countries to endeavor to resolve disputes related to the interpretation and application of tax treaties.

The peer review process is conducted in two stages. Stage 1 assesses countries against the terms of reference of the minimum standards. Stage 2 focuses on monitoring the implementation of any recommendations that resulted from Stage 1.

The Stage 1 report for Canada concluded that, overall, the country meets most of the elements of the Action 14 minimum standard and that where it has deficiencies, it is working to address them.

The report noted that all of Canada's tax treaties include a provision relating to MAP. It said that Canada meets the minimum standard concerning the prevention of disputes, and has continued to employ an established procedure for allowing taxpayers to request rollbacks of bilateral advance pricing arrangements. The peer review also found that Canada meets the requirements regarding the availability and access to the MAP, but said that Canada should clarify its MAP guidance on the availability of the MAP in the case of audit settlements.

The OECD additionally observed that the Canada Revenue Agency (CRA) uses a pragmatic approach to resolving MAP cases in an effective and efficient manner. It said the CRA's organization is adequate.

However, the report also explained that there are some inconsistencies in Canada's tax treaties with the Article 14 minimum standard.

In the first instance, the peer review found that 75 percent of Canada's tax treaties include a time limit for the submission of MAP requests that is less than three years. In addition, almost 40 percent of Canada's do not provide that mutual agreements shall be implemented notwithstanding any time limits in domestic law, or include alternative provisions to set a time limit for making transfer pricing adjustments.

The OECD said that, to be fully compliant, Canada "needs to amend and update a significant portion of its tax treaties." The report stated that Canada has indicated that bilateral negotiations are pending to replace or amend existing treaties, and that the recently signed Multilateral Instrument for the implementation of treaty-related BEPS measures potentially covers 75 of Canada's treaties.

Canada resolved 160 MAP cases in 2016, with the average resolution time 20.87 months.

TAGS: tax | double tax agreement (DTA) | law | Organisation for Economic Co-operation and Development (OECD) | audit | agreements | transfer pricing | Canada | standards | BEPS

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