Double Taxation Relief in Canada: OverviewBy Robert Robillard - 28 May 2014
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Most of the bilateral Tax Treaties signed by Canada include provisions identical or similar to paragraphs 1, 2 and 3 of Article 25 Mutual Agreement procedure of the OECD Model Tax Convention which read:
“1. Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of the Contracting State of which he is a resident or, if his case comes under paragraph 1 of Article 24, to that of the Contracting State of which he is a national. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention.
2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the Convention. Any agreement reached shall be implemented notwithstanding any time limits in the domestic law of the Contracting States.
3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. They may also consult together for the elimination of double taxation in cases not provided for in the Convention.”
Paragraph 4 of the IC 71-17R5 Guidance on Competent Authority Assistance Under Canada’s Tax Conventions indicates:
“4. Assistance by the Canadian Competent Authority is generally provided under the Mutual Agreement Procedure (MAP) article contained in Canada’s tax conventions. […]»
Paragraph 11 of the IC 71-17R5 provides various examples of taxation whereas relief may be sought-after, among which:
- “[…] A taxpayer in a treaty country is subject to additional tax because of an adjustment to the price of goods or services transferred to or from a related party in Canada. The Canadian taxpayer may request that the Canadian Competent Authority allow a corresponding deduction in Canada to prevent double taxation.
- A branch of a Canadian resident taxpayer operating in a treaty country is subject to additional tax because of an adjustment by the treaty country of the income allocated to the branch. The taxpayer may request that the Canadian Competent Authority allow an increased foreign tax credit in Canada to prevent double taxation.
- A Canadian taxpayer subject to tax in Canada on world income, including income from carrying on a business in a treaty country, is taxed in the treaty country on the business income earned in the treaty country despite not having a permanent establishment in that country under the tax convention. The taxpayer may request the Canadian Competent Authority to address the issue of taxation not in accordance with the tax convention with the competent authority of the other country.
- Tax is withheld by a treaty country on a payment to a Canadian resident at a rate in excess of the rate stated in the tax convention. The taxpayer may request the Canadian Competent Authority to address the taxation not in accordance with the tax convention with the competent authority of the other country.
- Where there is uncertainty whether the treaty covers an item of income arising in the other jurisdiction, the taxpayer may approach the Canadian Competent Authority for clarification.
- […Also] a Canadian resident may also seek assistance from the Canadian Competent Authority if the resident believes that a Canadian-initiated adjustment results or will result in taxation not in accordance with the tax convention. For example, a taxpayer in Canada who is subject to additional tax because of a CRA proposed adjustment to the price of goods or services transferred to or from a related party in a treaty country may request the Canadian Competent Authority to ask the other competent authority to allow a corresponding deduction for the related party in the treaty county in order to prevent double taxation.”
Robert Robillard, CPA, CGA, MBA, M.Sc. Econ.
Transfer Pricing Chief Economist, RBRT Inc.
514-742-8086; robert.robillard “at” rbrt.ca
RBRT Inc. is all about transfer pricing. We specialize in transfer pricing. Our services include transfer pricing documentation, transfer pricing dispute resolution, advanced pricing agreement (APA), value chain management and TP planning, transfer pricing training. The information in this blog post is general information only. Data and information come from sources believed to be reliable but complete accuracy cannot be guaranteed. RBRT Inc. and the author are not responsible or liable for any error, omission or inaccuracy in such information. Readers should seek independent tax advice and tax counsel from RBRT Inc. as required.
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