By Doug Connolly, MNE Tax
The Canada Revenue Agency reduced the average time to complete a bilateral advance pricing arrangement (APA) by more than one year in 2020, according to the CRA’s 2020 APA program report, released April 27.
On average, it took 36.9 months for CRA to complete a bilateral APA in 2020 – down from 51.1 months in 2019. This was the fastest time to completion in the past five years. Completion times in 2018, 2017, and 2016 were 41.9, 47.9, and 42.7, respectively.
By comparison, the US median completion time for APAs in 2020 was 32.7 months – also a drop from the previous year. Bilateral APAs between Canada and the US represented the majority of Canada’s inventory of APA cases (53 percent). Canada’s remaining APA inventory involves 18 different jurisdictions.
About half of the time to complete a bilateral APA in Canada is spent in the “due diligence stage,” which took an average of 17.8 months in 2020. This stage begins when a taxpayer is accepted into the program and involves the CRA’s review of taxpayer materials and additional queries.
The next stage is the “negotiation stage,” in which CRA negotiates with a foreign tax administration. This stage took 9.2 months on average in 2020. The final “post-negotiation stage” involves documentation and agreement signing and took on average 9.9 months.
There were two unilateral cases closed in 2020, which took an average of 22.9 months to complete.
The report notes that the time to completion generally depends on the scope and complexity of the case, as well as the availability of necessary information and the taxpayer’s cooperation. It also states that CRA is reviewing its APA process in 2021 to identify further opportunities to improve timeliness.
At the end of the year, Canada had an inventory of 69 open cases. A total of 15 APAs were completed in 2020, while 19 new cases were accepted into the program. Of the 15 completed APAs in 2020, 13 were bilateral agreements with foreign tax administrations, and two were unilateral.
Regarding categories of transactions in the APA program, the greatest percentage involved the cross-border transfer of tangible property (42 percent). This was followed by intangible property (27.5 percent), intra-group services (26.1 percent), and financing arrangements (4.4 percent).
The APA program is intended to increase certainty on transfer pricing issues and help taxpayers prevent transfer pricing disputes in future years. The annual report on the program gives a status update on the operation of the program and includes information on changes affecting the program.
Doug Connolly
Doug Connolly is Editor-in-Chief of MNE Tax. He has more than 10 years of experience covering tax legal developments, previously working with both a Big Four firm and a leading legal publisher. He holds a law degree from American University Washington College of Law.
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