Proposed Canadian advance pricing agreement information circular.

On July 29, 1993, Tax Executives Institute submitted the following comments on a draft Information Circular containing guidelines for the Advance Pricing Agreement process in Canada. The comments--which were submitted to Carole Gouin-Touissant, Director, General, International Tax Programs Directorate for Revenue Canada, Customs, Excise and Taxation--were prepared under the aegis of TEI's Canadian Income Tax Committee, whose chair is Vincent Alicandri of Xerox Canada.

On May 21, 1993, Revenue Canada-Customs, Excise and Taxation issued an exposure draft of an information circular (IC) relating to procedures and guidelines for securing an Advance Pricing Agreement (APA) to confirm that a taxpayer's transfer pricing methodology and results will satisfy the requirements for dealing with related parties as though at arm's length. Tax Executives Institute is pleased to submit the following comments on the draft of the proposed information circular.

Background

Tax Executives Institute, Inc. is an international organization of approximately 4,800 professionals who are responsible--in an executive, administrative, or managerial capacity-for the tax affairs of the corporations and other businesses by which they are employed. TEI's members represent more than 2,400 of the leading corporations in Canada and the United States.

Canadians make up approximately 10 percent of TEI's membership, with our Canadian members belonging to chapters in Calgary, Montreal, Toronto, and Vancouver, which together make up one of our nine geographic regions. In addition, a substantial number of our U.S. members work for companies with significant Canadian operations. In sum, TEI's membership includes representatives from most major industries, including manufacturing, distributing, wholesaling, and retailing; real estate; transportation; financial; and natural resources (including timber and integrated oil companies). The comments set forth in this submission reflect the views of the Institute as a whole, but more particularly those of our Canadian constituency.

Overview

TEI commends Revenue Canada for proposing such an innovative procedure as the Advance Pricing Agreement (APA) to reduce potential controversies surrounding transfer pricing methodologies (TPM). The Institute has participated in the development of an APA procedure in the United States, and is pleased to have a similar opportunity with respect to the Canadian procedure.(1) For many taxpayers, obtaining an APA will doubtlessly reduce the uncertainty in ascertaining whether a particular price will be deemed to satisfy the requirement of dealing with related parties as though at arm's length. In the comments that follow, TEI sets forth its specific recommendations to improve the Information Circular (IC) and provide taxpayers with adequate information to assess whether to pursue an APA. Our comments generally follow the organization of the IC.

Introduction

Paragraph 1 of the IC states that an APA is designed to prospectively confirm an appropriate transfer pricing methodology. To allay taxpayer concerns relating to the treatment of related-party transactions in prior open taxation years, we recommend that Revenue Canada's policy on the retroactive application of the APA methodology be set forth as part of the Introduction, as well as in several of the detailed provisions (discussed below).

Paragraph 2 of the Introduction states that the IC is not meant to be exhaustive and that more detailed information will be made available during pre-filing meetings between the taxpayer and Revenue Canada. We recommend that the scope of the circular be reconsidered and that substantially more detailed information be provided as part of the IC to enable taxpayers to determine whether to even commence the APA process.

Finally, inasmuch as the Customs, Excise, and Taxation departments of Revenue Canada have now been combined, we suggest that consideration be given to extending the APA procedure to customs...