TPM-12R

Accelerated Competent Authority Procedure

November 12, 2024

This memorandum does not replace the provisions of the Income Tax Act and the Income Tax Regulations, or the applicable income tax convention. It is provided for your reference. As it may not completely address your particular situation, it would be advisable to refer to the Act, the Regulations, relevant case law or the applicable convention. For more information, you may also contact a tax services office (TSO) of the Canada Revenue Agency (CRA) or the Competent Authority Services Division (CASD) by email at CPMAPAPAG@cra-arc.gc.ca.

• Introduction
• Background
• Eligibility of an ACAP request
• Submitting an ACAP request
• Information and procedural requirements
• Acceptance of an ACAP request
• Rejection of an ACAP request
• Revocation of an ACAP settlement
• Other considerations

Introduction

1. The purpose of this transfer pricing memorandum is to provide clarification and guidance on the Accelerated Competent Authority Procedure (ACAP) as presented in paragraphs 21 and 22 of Information Circular IC71-17R6, Competent Authority Assistance under Canada’s Tax Conventions.

Background

2. A taxpayer who is faced with a situation of taxation that is not in accordance with the provisions of a convention (for example, double taxation resulting from a transfer pricing audit) may request competent authority assistance pursuant to the Mutual Agreement Procedure (MAP) article of that convention. If accepted, the competent authorities of the jurisdictions concerned will generally endeavour to resolve the tax dispute. Concurrently, a taxpayer may request assistance on the same MAP issues for subsequent taxation years that have a reasonable likelihood of resulting in taxation that is not in accordance with the provisions of the applicable convention. This procedure is referred to as an ACAP.

3. When an ACAP request is accepted, the competent authorities are able to negotiate issues that are addressed under an existing MAP request by extending MAP consideration to subsequent taxation years that have been initially assessed by the CRA. Among other things, these years may be in the process of a risk assessment, they may be subject to an ongoing audit or they may eventually be considered for audit. When completed, an ACAP settles potential taxation issues under a convention without requiring a reassessment from an audit and a subsequent formal competent authority request. Therefore, an ACAP streamlines and expedites the MAP process for subsequent taxation years that involve the same issues as those addressed in the MAP.

Eligibility of an ACAP request

4. An ACAP request may be accepted for an issue if all of the following criteria are met:

• The issue involves a taxpayer and a related party in a foreign country with which Canada has a tax convention and that convention provides the flexibility needed to consider an ACAP request;
• The same issue addressed in a current MAP request is recurring during the years subject to the ACAP request, and there is a reasonable likelihood that it will result in taxation not in accordance with the provisions of the convention;
• The tax returns for all of the years subject to the ACAP request have been filed by the taxpayer and assessed by the CRA;
• The ACAP request is submitted to CASD with sufficient time to allow the CRA to issue any necessary reassessments within the time limits specified in the applicable convention. Should the applicable convention not specify time limits, the request must be received with sufficient time to make an adjustment under the domestic legislation of both jurisdictions in question;
• There are no unusual circumstances or transactions that would render the application of an ACAP impractical;
• CASD is satisfied that there were no material changes in the relevant facts and circumstances of the issue throughout the MAP and ACAP taxation years; and
• The competent authority of the other jurisdiction agrees to include the ACAP period with the associated MAP request.

Submitting an ACAP request

5. Taxpayers are advised to submit an ACAP request concurrently with a MAP request. Requests may be considered at a later time, provided they are submitted as soon as possible during the MAP process in order to allow the competent authorities sufficient time to review and consider the request before the conclusion of the competent authority negotiations.

Information and procedural requirements

6. In order for CASD to make its determination, an ACAP request must include the following information:

1. The taxation years to be covered by the ACAP.
2. A description of the issue that is likely to result in double taxation.
3. Estimates of the amount of income potentially subject to double taxation for the ACAP taxation years, calculated as the difference between income reported by the taxpayer and income that would be determined, should one or both jurisdictions apply the same position that led to double taxation for the MAP taxation years. This information should be presented per issue (or transaction) and on a taxation year basis.
4. Transfer pricing contemporaneous documentation (Documentation) for each of the years subject to the ACAP request. The Documentation must meet the requirements of paragraphs 247(4)(a) and 247(4)(b) of the Act. In circumstances where the Documentation has not been prepared contemporaneously^{Footnote 1} , taxpayers are required to submit the information that would otherwise have been reflected in their Documentation in accordance with paragraph 247(4)(a) of the Act.
5. Any other information that may help demonstrate to CASD that the same issue resulting in double taxation (as reflected in the MAP request) is ongoing over the term of the requested ACAP.
6. Efforts should also be undertaken to identify any changes to the taxpayer’s circumstances and business operations that may have occurred during the ACAP years (such as acquisitions, dispositions, and other changes to their operations or intercompany transactions). In such circumstances, satisfactory explanations must be provided to demonstrate how those changes have no material impact on the issues subject to the MAP and ACAP requests.
7. For each taxpayer involved in the request, a schedule of the statute-barred dates in each jurisdiction (domestic time limits) and relevant time limits under the applicable convention in respect of all years to be covered by the ACAP along with waivers, as needed (see paragraph 32 of IC71-17R6).
8. Any other information requested by CASD that is related to the MAP or ACAP taxation years.

7. An ACAP request must also include an acknowledgment signed by an authorized officer confirming that they understand and concur with the following:

1. The issues in the MAP request are ongoing and there has been no change in the facts and circumstances that would materially affect the transactions or issues covered by the ACAP request;
2. The request or acceptance of an ACAP does not prevent the CRA from reviewing the taxpayer’s books and records, including those related to transactions covered by the ACAP;
3. The taxpayer will either accept or reject the terms and conditions of a settlement for MAP and ACAP years, together; and
4. CASD may revoke a settlement relevant to the ACAP years and issue a reassessment if either the taxpayer or a relevant non-resident has made any misrepresentation, mistake or omission in the ACAP request or in otherwise providing information with respect to this ACAP request, that is attributable to neglect, carelessness or willful default.

Acceptance of an ACAP request

8. An ACAP request will only be accepted if CASD has confirmed that all of the eligibility, information and procedural requirements described herein have been satisfied.

9. CASD will also consult with other areas of the CRA, including Audit, regarding an ACAP request to ensure there are no additional risks or material compliance issues that would be better addressed through other compliance means.

10. Once CASD has determined that an ACAP request can be accepted, the taxpayer will be notified in writing and the requested ACAP will be negotiated simultaneously with the associated MAP.

11. Note that ACAP requests are not negotiated independently of a MAP case. As such, if an ACAP is subject to arbitration, it will generally be subject to any time limits under the applicable convention that may relate to arbitration of the associated MAP.

Rejection of an ACAP request

12. An ACAP is a discretionary process for the competent authorities of the countries involved. There is no legal requirement for CASD to accept an ACAP request. In addition, there is no legal entitlement to ACAPs or statutory framework for ACAP requests.

13. An ACAP request will be rejected (or terminated if it was previously accepted) should it fail to meet any of the eligibility, information and procedural requirements outlined in this memorandum. Where CASD has determined that the requirements are not met, the taxpayer will be informed and provided with an opportunity to address any deficiencies.

14. An ACAP request may be rejected if CASD considers that conducting information and due diligence reviews would require substantial time and resources beyond those that would be required to address the associated MAP case, or if CASD considers that the risks or issues would be better addressed through other compliance means.

15. An ACAP request shall be rejected should CASD determine that the underlying facts and circumstances do not support the acceptance of the ACAP request (for example, where there exist material differences in the taxpayer’s business, operations or intercompany transactions between the MAP and ACAP taxation years) or that it is unlikely that the same issue addressed in a current MAP request is recurring during the years subject to the ACAP request.

16. If an ACAP request is received very late or near the end of the associated MAP process, or if CASD does not have sufficient time to determine whether all of the eligibility, information and procedural requirements have been met (having regard to any domestic time limits and relevant time limits under the applicable convention relating to the associated MAP case or the ACAP years), the ACAP request may be rejected.

17. An ACAP request that was previously accepted may be terminated by CASD and referred to Audit for reassessment in situations where domestic time limits or time limits under the applicable convention may be approaching.

18. The rejection or termination of an ACAP request does not preclude the taxpayer from seeking competent authority assistance in the future, should they find themselves in a situation of taxation resulting from the action of one or both tax administrations for the same issue that is not in accordance with the applicable convention. The taxpayer may request competent authority assistance, for the years concerned, through the regular MAP process (as outlined in IC71-17R6).

19. A competent authority settlement is not considered a precedent for either the taxpayer or the CRA with respect to filing positions, assessments, reassessments or competent authority negotiations on the same issues for subsequent taxation years. Accordingly, any subsequent request for competent authority assistance relating to taxation years that were covered by a previous ACAP request (but were not accepted or were terminated) will proceed independently of the resolution of a MAP for prior taxation years.

Revocation of an ACAP settlement

20. CASD may revoke an ACAP settlement if either the taxpayer or a relevant non-resident has made any misrepresentation, mistake or omission in the ACAP request or in otherwise providing information with respect to the ACAP request, that is attributable to neglect, carelessness or willful default. If the settlement is revoked:

1. CASD will notify the taxpayer specifying the reasons for the revocation; 
2. CASD will inform the foreign competent authority of the revocation;
3. the revocation will be effective for all taxation years of the ACAP request; and
4. after the revocation, a transaction or issue that would have otherwise been covered by the ACAP settlement will be subject to any relevant provisions of the Act and the applicable convention.

Other considerations

21. An ACAP does not limit the taxpayer's rights or relieve them from their obligations under the applicable convention or the Act. An ACAP request does not exempt the taxpayer from documentation requirements under subsection 247(4) of the Act, nor does it exempt the taxpayer from the potential application of transfer pricing penalties under subsection 247(3) of the Act.

22. If the ACAP years are subject to an ongoing compliance audit, the Audit team will continue to examine issues that are not subject to the ACAP request. If the ACAP request is rejected, information and documents obtained during the ACAP process may be used by the CRA in the administration and enforcement of the Act.

23. The objective of an ACAP is to streamline the MAP process by allowing the competent authorities to negotiate for both MAP and ACAP years simultaneously. It is not intended to be a carryforward of a MAP settlement to subsequent years.