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Canada: Canadian 2017 budget provides update on BEPS

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Soraya M Jamal

Bill S Maclagan

Canada's 2017 budget gives a clear indication of the Canadian government's commitment to "continue to work with its international partners to ensure a coherent and consistent response to fight tax avoidance".

Budget 2017 notes that the Canadian government has implemented – or is in the process of implementing – various measures that meet the agreed minimum standards under the OECD's BEPS Project, including:

  • Enacting legislation in December 2016 that requires large multinational enterprises to file country-by-country reports for group fiscal years beginning on or after January 1 2016;

  • Participating in the development of the OECD's Multilateral Instrument (MLI) to streamline the implementation of tax treaty-related BEPS recommendations, including those addressing treaty abuse. Budget 2017 indicates that the Canadian government is pursuing signature of the MLI and is undertaking the necessary domestic processes to do so. However, no indication has been given as to which countries Canada is pursuing signature of the MLI with, or which of the many alternative provisions in the MLI Canada is seeking to implement;

  • Trying to improve the mutual agreement procedure in Canada's tax treaties in an effort to promote the effective and timely resolution of treaty-related disputes; and

  • Spontaneously exchanging tax rulings with other tax administrations where such rulings could otherwise give rise to BEPS concerns.

Canada already has robust controlled foreign corporation (CFC) rules and reporting requirements relating to certain tax avoidance transactions. Budget 2017 states that the Canada Revenue Agency already is applying the revised international guidance on transfer pricing by multinational enterprises.

In addition to the foregoing, Budget 2017 confirms that the Canadian government is strengthening its efforts to combat international tax evasion through enhanced sharing of information between tax authorities under the OECD's framework of the Common Reporting Standard (modelled on the US FATCA). In this regard, Canada recently enacted legislation to implement the standard, starting on July 1 2017, which will allow for the first exchanges of information with other countries in 2018.

Aside from the BEPS recommendations, the Canadian government has also announced proposed measures to extend base erosion rules to foreign branches of life insurers that, if enacted, would become effective for taxation years beginning on or after March 22 2017.

While Canada has been active in combatting international tax avoidance and evasion, Budget 2017 serves as a clear indication of the Canadian government's commitment to its continued efforts in this endeavour.

Soraya M Jamal, Partner (soraya.jamal@blakes.com) and Bill S Maclagan, QC, Partner (bill.maclagan@blakes.com), Vancouver

Blake, Cassels & Graydon LLP

Tel: +1 604 631 3300

Fax: +1 604 631 3309

Website: www.blakes.com

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