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Canada issues advance pricing arrangement programme report

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Phil Fortier, Alex Evans, and Raf Sattar of Deloitte in Canada summarise the key aspects of Canada’s APA programme report for 2017, allowing taxpayers and tax practitioners to align expectations of the scheme with the current approach.

The Canada Revenue Agency (CRA) recently released its “Advance Pricing Arrangement Program Report 2017”. The report reviews key aspects of and commentary on the CRA’s advance pricing arrangement (APA) programme for the 2017 calendar year, including statistics, recent developments, and current CRA practices. Highlights of the report are discussed below.

Pre-file meetings

In 2017, the CRA conducted 24 APA pre-file meetings with taxpayers.

The CRA has averaged 24 pre-file meetings a year since the 2012-2013 fiscal year, down from 34 in the 2011-12 fiscal year. This coincides with the introduction of procedural changes requiring taxpayers to submit an information package in advance of being granted a pre-file meeting date, with an increase in the level and detail of information expected of taxpayers when submitting the pre-file package.

The CRA’s information circular, IC94-4R, International Transfer Pricing: Advance Pricing Arrangements (APAs) is worth noting. It provides taxpayers with comprehensive guidance on APAs and the process of pursuing an APA with the CRA, which is being revised to include the procedural changes mentioned above. More specifically, the forthcoming version of the circular will include updated guidance on the pre-filing process, the criteria used to accept/reject APA requests, the roles and responsibilities of taxpayers, and guidance on APAs that are subject to the arbitration process under Canada’s network of tax treaties, most notably the Canada-US tax treaty.

APAs completed and accepted

During 2017, the CRA completed a total of 36 APAs, the highest total in five years. The majority (30) were bilateral agreements with foreign tax administrations, an increase over the 26 bilateral APAs completed during the 2016 calendar year and the 21 completed during the 2015 calendar year.

The CRA accepted 16 new APAs to the programme in 2017, compared to the 12 accepted in 2016. However, the number of applications accepted is still relatively low, considering that the last time fewer than 21 applications were accepted was in the 2011-12 fiscal year, when only 17 were accepted. This is primarily the result of an increase in pending applications, from 17 in 2016 to 23 in 2017.

Pending applications represent cases in which a taxpayer had participated in a pre-file meeting but had not yet been informed of the status of the application under the APA programme. Taking into consideration the withdrawal of three taxpayers previously accepted into the programme, closing inventory of cases in process was 67 at the end of 2017. This is the lowest inventory of cases since the 2008-09 fiscal year.

At year’s end, 88% of cases currently in process were on a bilateral basis, with just 12% on a unilateral basis. There were no multilateral APAs completed in 2017. However, including multilateral APAs, 85% (or 277) of the 322 successfully concluded cases have involved at least one other foreign tax administration. The US continues to be the most common jurisdiction involved in APAs in Canada, making up 52% of total APAs in process, a slight decrease from 56% last year.

Completion times up slightly

Average completion time for bilateral APAs – from acceptance in the programme to completion of the APA – increased to 48.5 months in 2017, up from 47.3 months in 2016. Similarly, the median time to completion increased to 47.9 months, up from 42.7 in 2016.

By comparison, the average completion time for bilateral APAs in the US in 2017 was 46.9 months, with a median time of 50 months. Average completion times for bilateral/multilateral APAs in the European Union (EU) countries vary significantly; for example, in 2016 the UK and France had a lower average completion time of 25 and 26 months for APAs with non-EU countries, respectively, while Germany’s average completion time for APAs with non-EU countries was 52 months.

Looking at the three phases of the APA process in Canada, the average time spent on the first phase – due diligence – dropped to 25 months in 2017, its lowest point since the 2012-13 fiscal year. The average time spent on the second and third phases, negotiations and post-negotiations, was 9.8 months and 13.7 months, respectively.

Predominance of transactions involving tangible property

APAs involving transfers of tangible property, the most common type of transaction in the programme, make up 58% of the APAs in process at the end of 2017. The balance of cases consisted of APAs involving intangible property, intragroup services, and financing, representing 18%, 19%, and 4% of all cases in process, respectively.

Transfer pricing methods

The transactional net margin method continued to be the most common transfer pricing method for transactions covered by the APA programme, representing 70% of cases in process in 2017. The remaining balance of cases in process used the cost plus (12%), profit split (10%), comparable uncontrolled price/transaction (7%), and resale price (1%) methods. The profit split and resale price methods were not used in any completed cases in 2017.


The CRA is currently actively engaged in bilateral and/or multilateral APA processes involving taxpayers from 15 different countries.

Participation by industry sector generally correlates with the pattern of Canadian trade. As such, automobile and other transportation equipment, health, computers and electronics, and metals and minerals sectors make up over one-half of all in-process APAs.

Closing remarks

The recent OECD BEPS initiative, and the resulting changes in domestic legislation, will lead to increased global tax controversy in coming years and increased uncertainty around transfer pricing outcomes.

As a result, taxpayers may find it advantageous to consider the APA programme to achieve certainty and to manage multilateral tax controversy over a period of several years. As the CRA continues to reduce its APA inventory, there may be willingness and opportunity to accept more cases into the programme and continue to reduce completion times for APAs. The APA programme remains an important element in a taxpayer’s overall transfer pricing strategy.

Phil Canada

Phil Fortier


Phil Canada

Alex Evans
Senior Manager

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