2016-0632941I7 BEPS exchange of tax rulings

Principal Issues: What will the Rulings Directorate be doing to help meet Canada's commitment to exchange information in respect of certain tax rulings, in accordance with Action 5 of the BEPS Project?

Position: The Rulings Directorate will be updating its information circular (IC 70-6) to outline the types of rulings potentially subject to this exchange, the process it will follow in performing the exchange and the additional information it will require in respect of requests for rulings within the scope of the exchange initiative.

Reasons: IC 70-6 is the Directorate's main means of communicating its administrative procedures to the public.

Author: Beaulne, Dave
Section: -

                                                                                           March 22, 2016

      Randy Hewlett                                                              HEADQUARTERS
      Acting Director General                                                Income Tax Rulings
      Income Tax Rulings Directorate                                    Directorate
      11th Floor                                                                      Dave Beaulne
      112 Kent Street  
      Ottawa, ON  K1A 0L5                                                   2016-063294

      Exchange of Rulings: BEPS Project – Action 5

Canada has committed to the exchange of information with other countries on certain tax rulings, in the context of the OECD’s Base Erosion and Profit Shifting (“BEPS”) project. The exchange initiative applies to binding advance income tax rulings and is to go into full force on April 1, 2016. The Income Tax Rulings Directorate will be updating Information Circular 70-6 (the “Circular”) to outline the types of rulings potentially subject to this exchange, the process it will follow in performing the exchange and the additional information it will require in respect of requests for rulings within the scope of the exchange initiative. This memo sets out the details of the additions to the Circular in this regard.

The following paragraphs will be added to the Circular:

[X1.] As part of the Organization for Economic Cooperation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) project, as described in Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 – 2015 Final Report, Canada has committed to the spontaneous exchange of information on tax rulings with certain other countries. In the context of the BEPS project, countries agreed to exchange information on the following types of Rulings that are relevant to the Directorate (footnote 1) :

a)    cross-border Rulings related to preferential regimes (for Canada this would include international shipping and certain foreign life insurance operations of a Canadian company);

b)    cross-border Rulings related to transfer pricing legislation;

c)    cross-border Rulings providing a downward adjustment not directly reflected in the taxpayers’ accounts;

d)    permanent establishment Rulings; and

e)    related party conduit Rulings.

[X2.] If a Ruling falls into one of the above categories, a summary of its contents may be exchanged with the countries of residence of the immediate parent company, the ultimate parent company and certain other parties. These countries may then ask to receive relevant portions of the Ruling in more detail. These exchanges of information will be performed in the usual manner, by the CRA’s Competent Authority Services Division, in accordance with the terms of Canada’s relevant tax treaties and other international agreements. As such, taxpayers making a Ruling request must include sufficient information to allow the CRA to identify the relevant parties for such exchanges. For more information, see the OECD website under Base Erosion and Profit Shifting.

There will also be a number of other changes to the Circular, mainly in respect of pre-ruling consultations. The latter changes reflect the fact that the pilot project was successful and pre-ruling consultations are being made a permanent part of our advance income tax rulings service. Finalization of all changes to the Circular is nearing completion and we expect a revised Circular to be published in the coming weeks.

Yours truly,

Dave Beaulne, CPA, CA
Section Manager
for Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader:  Because of our system requirements, the footnotes contained in the original document are shown below instead:

1  Action 5 also contemplates the exchange of information on rulings dealing with advance pricing arrangements. These rulings are given by another branch of the CRA.

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