Tax memo: TCDR alert: Competent authority

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Protect your rights

Memo No. 2012-26

Canada currently has 89 income tax treaties in force, each of which includes a provision for the relief of double taxation under the Mutual Agreement Procedure (MAP) article. However, each country retains the right to its own interpretation of its treaties, so some countries, such as Brazil and Argentina, do not have very active MAP programs with Canada.

Specific wording in the Canada-U.S. treaty allows the treaty to override domestic legislation. As a result, when a taxpayer makes a request to either competent authority for relief from double taxation, any settlement between the Canadian and United States competent authorities can be applied to the tax returns of the respective taxpayers, regardless of whether the taxation year subject to double taxation is statute-barred domestically. This applies provided the competent authority of the non-initiating state is notified of a potential request for competent authority assistance within six years from the end of the applicable taxation year.

Because the vast majority of double taxation cases handled by the Canadian competent authority are brought under the Canada-U.S. treaty, taxpayers have become complacent, believing that all Canadian treaties are similar to this one. Not so.

The remainder of this Tax memo addresses issues that Canadian taxpayers must be aware of under two scenarios, when requesting relief from double taxation other than in respect of the United States.