Global Tax Alert (News from Transfer Pricing) | 15 August 2013

CRA MAP report reflects improved timelines and continued high volume of Canada-initiated cases

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On 8 August 2013, the Canada Revenue Agency (CRA) released its Mutual Agreement Procedure (MAP) Program Report for the fiscal year ending 31 March 2013 (covering the period from 1 April 2012 to 31 March 2013). The report provides an overview of the operations of the MAP program, including statistical analyses of cases completed and in progress, covering cases dealing with resolution of double taxation or taxation not in accordance with a bilateral tax treaty.

The CRA releases a separate annual report on the Advance Pricing Arrangement (APA) Program.

The following are highlights from the MAP report.

Percentage of Canadian-initiated cases remains high

The percentage of Canadian-initiated cases remained at the historic high level of 92% of completed cases in 2012-13, virtually the same as in the previous year. However, these are up from 88% in 2010-11, and a significant increase over the 80% observed in 2009-10, and the 83% in 2008-09. These high levels may reflect an increase in Canadian transfer pricing audits coming through the pipeline following the increase in the CRA's international audit resources in the mid-2000s.

Going forward, given the inherent time lag in transfer pricing audits and the resolution process, the percentage of foreign-initiated cases is expected to increase as other countries – most notably the US – focus more attention on international audits and assign more resources to them. In 2009, the US Internal Revenue Service confirmed its commitment to boosting its international enforcement efforts, and announced it planned to significantly increase the number of agents assigned to the audit of international issues. It is expected that these additional US resources will begin to impact the MAP program in Canada in the next few years.

Timelines improved

The time required to complete these Canadian-initiated cases has decreased significantly to an average of 26.13 months. This is down from 31.46 months in the prior fiscal year, but is still in excess of the Canadian Competent Authority's targeted timeline of 24 months.

This decrease seems largely due to improvement in the early phase evaluation of the Canadian position, which took an average of 5.36 months in fiscal 2012-2013, compared to an average of 10.43 in the previous fiscal year. This improvement brings the program much closer to meeting its target of 12 months to complete the initial phases (acceptance, preparation and evaluation of the Canadian position) and the overall target of completing negotiation of a case within 24 months.

The time to complete foreign-initiated cases increased slightly to 21.93 months from 20.01 months in 2011-12, primarily due to a longer negotiation phase. Given the small number of foreign-initiated cases completed in both years, this variance is not significant.

Overall, the closing inventory of negotiable cases stood at 315 cases at the end of the fiscal year, virtually unchanged from the 312 cases at the end of 2011-12. With regard to transfer pricing cases, which represent the majority of the MAP cases, the ending inventory increased from 200 in 2011-12 to 209 cases at the end of the current fiscal year. While the ending inventory of double tax cases was up, almost 25% more files were taken in than in the prior year (107 versus 85) and approximately 12% more cases were completed (98 versus 87).

Few cases not receiving relief from double taxation

Of the 114 cases negotiated with other jurisdictions, nine (8%) did not obtain complete relief from double taxation, the same percentage as in the prior year, and down from 14% in 2010-11. This rate reflects a traditional level for the program, where rates below 10% have historically prevailed.

The nine cases failed to receive full relief for a variety of what might best be described as technical reasons, such as improper notification, exceeding time limits, or procedural limitations. Encouragingly, it appears that none fell into the category of the respective competent authorities simply being unable to come to an agreement. Nonetheless, these cases particularly exemplify the need for taxpayers to pay close attention to the process and technical requirements of the Income Tax Act and applicable tax treaties as they move along through the dispute resolution process, in order to fully protect their rights and maintain the highest probabilities of obtaining double tax relief.

Still silent on arbitration

As in prior years, the report notes the existence of the arbitration feature under the Canada-US treaty. It appears that there have been several cases that have been through the arbitration process so far. While it would have been informative to provide at least general information about the Canadian Competent Authority's experience in arbitration to date without breaching the confidentiality provisions of the arbitration process, the report remains silent on that front.

Continuing high volume of non-negotiable MAP cases

The report indicates that the Canadian Competent Authority resolved 1,977 non-negotiable MAP cases, compared to 813 in 2011-12. Non-negotiable cases are those that do not require the Canadian Competent authority to negotiate with another jurisdiction, and usually pertain to excess withholding tax, pension issues, capital gains deferral agreements and other items.

The report does not provide an explanation for the increase in the volume of these cases, but we understand that it is largely due to increases in withholding tax refund requests prompted by changes in the way the Canadian payers (generally, trust companies) handle year-end adjustments for their clients.

TNMM remains the most prevalent methodology to settle transfer pricing cases

Transfer pricing cases represented 86% of the 114 completed negotiable cases. Among completed transfer pricing MAP cases, the transactional net margin method (TNMM) was applied in 48% (44 out of 92 cases where a transfer pricing method was used to resolve the case).

Among these TNMM cases, operating margin was the most commonly used profit-level indicator, in 32% of the 92 cases, followed by total cost plus (9%), Berry ratio (4%) and return on assets (3%). Along with similar results in the APA program, they show the continued attractiveness of the TNMM as a basis to determine transfer prices.

Other methodologies used include cost plus (23%), comparable uncontrolled price or transaction (16%), resale price (11%) and profit split (2%) in descending order of frequency. These percentages are largely in line with those in 2011-12, with the exception of a spike in the use of the resale price method.


The results in the 2012-13 MAP report continue to indicate progress in the operations of the MAP program. While the program continues to experience an environment of government restraint and tight resources, it appears to be making modest gains in improving the delivery and efficiency of the MAP program.

To view the full Mutual Agreement Procedure Program Report, visit

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (Canada), Ottawa
  • John Oatway
    +1 613 598 4809
  • Rene Fleming
    +1 613 598 4406
  • Phil Fortier
    +1 613 598 4291
  • Sandy Goldberg
    +1 613 598 4810
  • Paul Mulvihill
    +1 613 598 4339
  • Fred O'Riordan
    +1 613 598 4808
  • Tony Wark
    +1 613 598 4322
  • Gary Zed
    +1 613 598 4301
Ernst & Young LLP (Canada), Toronto
  • Andrew Clarkson
    +1 416 943 2146
  • Sean Kruger
    +1 416 941 1761
  • Ken Kyriacou
    +1 416 943 2703
  • Lori Whitfield
    +1 416 943 7199
Ernst & Young LLP (Canada), Quebec and Atlantic Canada
  • Rachel Spencer
    +1 514 879 8214
  • Alfred Zorzi
    +1 514 874 4365
Ernst & Young LLP (Canada), Prairies
  • Lawrence Greer
    +1 403 206 5031
Ernst & Young LLP (Canada), Vancouver
  • Greg Noble
    +1 604 891 8221
  • Matthew Sambrook
    +1 604 899 3559
Couzin Taylor LLP, Canada
  • David Robertson
    +1 403 206 5474
  • Daniel Sandler
    +1 416 943 4434
  • Louis Tassé
    +1 514 879 8070
  • Roger Taylor
    +1 613 598 4313

EYG no. CM3737