This content is from: Canada

Active cases in Canada’s APA programme grow, but so do withdrawals

The period of Canada’s Advance Pricing Arrangement (APA) programme that concluded on March 31 2010 saw an all-time high in active cases, but questions about staffing issues still linger.

The Canada Revenue Agency’s (CRA) 2010 report said the programme’s active inventory rose from 84 cases at the start of the year to 95 cases at year’s end.

In the year up to the end of March 2010, the number of completed cases rose to 16, six more than were completed by the end of 2009. 

“The CRA hired additional economists and analysts who developed the experience and knowledge to process APAs more quickly,” said a CRA spokesperson. “We have also used various new technologies to increase efficiency and maximize productivity.”

On the other hand, the number of pre-acceptance withdrawals was also an all-time high for the programme. The report stated that in 2010, 11 withdrawals took place after the pre-file meeting occurred, which is significantly more than the previous high recorded in 2007.

Withdrawals may occur when either the taxpayer decides not to pursue an APA, or the CRA advises the taxpayer that it is not eligible to complete the programme.

The reason for this marked increase in the number of pre-file withdrawals is unclear. Some practitioners speculate that even though the CRA increased staff levels and devoted additional resources to the APA programme in 2009, the rise in withdrawals indicates that is remains underserved.

“Although applicants are not required to tell us why they are withdrawing their APA applications, in some instances, it was the CRA that decided it would not be able to pursue a taxpayer’s APA request on the basis of the information provided,” explained the CRA spokesman. “In the other instances taxpayers chose not to pursue an APA.”

The report also suggests that the CRA is looking for other ways to conserve limited resources, including limiting the number of site visits that they will conduct for applications to renew APAs. 

“The CRA consistently strives to increase its productivity and cost-effectiveness. It has always been the CRA’s plan to reduce site visits on renewal APA applications where there have not been material changes to the transaction,” said the CRA spokesperson. 

“The degree to which this is possible depends on a variety of factors including the susceptibility of the taxpayer’s industry to change and the nature of the transaction.”

The average time it took the CRA to conclude a bilateral APA climbed to 48.8 months, which was an increase from 42.2 for cases completed in 2009, while unilateral APAs took an average of 18.5 months to complete, compared to 40.3 months in 2009.

The top three countries with which Canada negotiated bilateral and multilateral APAs were, in descending order, the US, Japan, and the UK.

The report also indicates that the most common transfer pricing issues covered by APAs in 2010 were tangible goods, intangible property and intragroup services.

The most common method used to evaluate cases was the transactional net margin method, followed by the profit split and gross margin methods next. Comparable uncontrolled price method was the least frequently used method.

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