Canada: Automatic Exchange of Information on Tax Rulings

Par Robert Robillard - 27 avril 2016

This blogpost originally appeared on rbrt.ca.

Numerous BEPS rules are, slowly but surely, being included in tax legislation around the world.

From the perspective of tax administrations, exchange of information will be a key of component of the successful implementation of BEPS rules.

As part of the Tax Transparency Package, the European Commission indicated in October 2015, an  » unanimous agreement by Member States on the automatic exchange of information on cross-border tax rulings, just seven months after the presentation of the Commission’s ambitious proposal on the subject. »

The key elements of these rules on automatic exchange of information:

« […] require Member States to automatically exchange information on their tax rulings. The directive will remove Member States discretion to decide on what information is shared, when and with whom.

These rulings – defined widely so as to capture all similar instruments and irrespective of the actual tax advantage involved – will have to be exchanged every six months. The agreement will also cover existing rulings of the past five years. Member States will then be able to ask for more detailed information on a particular ruling.

The automatic exchange of information on tax rulings will enable Member States to detect certain abusive tax practices by companies and take the necessary action in response. It is expected that this initiative will deter tax authorities from offering selective tax treatment to companies once this is open to scrutiny by their peers. This will result in much healthier tax competition.

In addition, the Commission will regularly receive the information it needs in order to monitor the implementation of this directive and ensure that Member States are complying with their responsibilities.

Member States will have to transpose the new rules into national law before the end of 2016, meaning that the Directive will come into effect on 1 January 2017. »

Canada recently joined the automatic exchange of information dance floor.

New paragraphs 54-55 of IC70-6R7 Advance Income Tax Rulings and Technical Interpretations indicate:

« 54. As part of the Organization for Economic Cooperation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) project, as described in Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 – 2015 Final Report, Canada has committed to the spontaneous exchange of information on tax rulings with certain other countries. In the context of the BEPS project, countries agreed to exchange information on the following types of Rulings that are relevant to the Directorate:

  1. cross-border Rulings related to preferential regimes (for Canada this would include international shipping and certain foreign life insurance operations of a Canadian company);
  2. cross-border Rulings related to transfer pricing legislation;
  3. cross-border Rulings providing a downward adjustment not directly reflected in the taxpayers’ accounts;
  4. permanent establishment Rulings; and
  5. related party conduit Rulings.

55. If a Ruling falls into one of the above categories, a summary of its contents may be exchanged with the countries of residence of the immediate parent company, the ultimate parent company and certain other parties. These countries may then ask to receive relevant portions of the Ruling in more detail. These exchanges of information will be performed in the usual manner, by the CRA’s Competent Authority Services Division, in accordance with the terms of Canada’s relevant tax treaties and other international agreements. As such, taxpayers making a Ruling request must include sufficient information to allow the CRA to identify the relevant parties for such exchanges. For more information, see the OECD website under Base Erosion and Profit Shifting. »

Although the wording in paragraph 55 seemingly leans toward the conditional tense (« may this », « may that »), any business involved in cross-border dealings should adjust accordingly to this reality of ever-increasing tax transparency.

The library on Transfer Pricing in Canada is available here.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Inc.
514-742-8086; robertrobillard « at » rbrt.ca
www.rbrt.ca

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