There are unilateral, bilateral, and multilateral APA possibilities in Canada. Bilateral and multilateral APAs are conducted by the Competent Authority Services of the Canada Revenue Agency (CRA). There are no pre-established Form or format for APAs, and procedure and time limits for bilateral MPAs may vary from treaty to treaty. There is no filing fee for APAs. The CRA announced on 5 February 2021 that the taxpayers are not required to reimburse the out-of-pocket expenses of the CRA in negotiating the APA (previously, taxpayers were required to reimburse the out-of-pocket expenses).
Most tax treaties concluded by Canada contain a Mutual Agreement Procedure clause, allowing the competent authorities of the Contracting Parties to consult with each other in order to resolve cases of (double) taxation not in line with the Convention.
Furthermore, the Canadian treaties with the US and Switzerland contain an arbitration clause, whilst the treaty with the Netherlands provides for voluntary arbitration. A number of Canadian treaties foresee the possibility of arbitration, but their activation requires steps which have hitherto not been taken.
The Canada Revenue Agency (CRA) has published a new circular dated 1 June 2021 on Competent authority assistance under the Mutual Agreement Procedure (MAP) article contained in Canada's tax conventions. In certain situations, other articles may apply to allow for competent authority assistance.
A taxpayer can initiate a MAP procedure with the Canadian competent authority on tax issues arising in the following circumstances:
- Dual residency;
- Double taxation arising from additional tax levied in a treaty country because of a transfer pricing adjustment in respect of a transaction with a related party in Canada;
- Double taxation arising from transfer pricing adjustments on profits allocated to a branch of a Canadian company in a treaty country;
- Double taxation arising from tax levied on business income earned by a Canadian taxpayer in a treaty country, despite the Canadian taxpayer not having a permanent establishment in that country;
- Withholding of tax in a treaty country at a rate exceeding the rate stated in the tax treaty; and
- Clarification regarding the taxability of an item of income arising in the treaty country.
A Canadian taxpayer may also request a MAP from the Canadian competent authority in cases of Canadian-initiated adjustments resulting in taxation not in accordance with the tax convention.
Under MAP, the tax disputes may be resolved unilaterally, i.e., without consulting the other competent authority, if the tax issue is within the scope of Canada’s tax laws and the Canadian competent authority considers that the MAP request is justified. If the Canadian competent authority is not itself able to arrive at a satisfactory solution, it will endeavour to resolve the matter by mutual agreement with the other competent authority. It is possible to initiate a multilateral MAP in situations involving more than two jurisdictions, and depending on the facts of the particular case and the treaty partners involved.
If the taxpayer has any appeals pending on a matter covered by the MAP, the taxpayer has the option to hold the appeals in abeyance until the resolution of the issue by the competent authorities. If the competent authorities do not resolve the issues, or the taxpayer decides to reject a competent authority agreement, the taxpayer retains the right of appeal under the legal system of Canada.