Canada-U.S. Tax Convention – Arrangement signed on the exchange of Country-by-Country Reports

On June 7, 2017, the competent authorities of Canada and the United States of America (U.S.) signed an arrangement on the exchange of Country-by-Country Reports. The information exchanged is subject to the confidentiality and other provisions of the Convention between the United States of America and Canada with Respect to Taxes on Income and on Capital, signed on September 26, 1980.

The arrangement implements the country-by-country reporting standard that the Organisation for Economic Co-operation and Development (OECD) developed in connection with the Base Erosion and Profit Shifting Action Plan adopted by the OECD and G20 countries. Country-by-country reports will be exchanged between the Canada Revenue Agency and the U.S. Internal Revenue Service on the global allocation of the income, the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions that multinational enterprise groups operate in. This cooperation will provide each tax administration with information to assess high-level transfer pricing and other risks related to base erosion and profit shifting.

Country-by country reports will first be exchanged for the fiscal years of multinational enterprise groups that begin on or after January 1, 2016. The reports will be exchanged no later than 15 months after the last day of the fiscal year of the group that the report relates to. However, reports for the 2016 year benefit from an extra three months and need only be exchanged within 18 months.

Under the arrangement, the information can be used only to assess high-level transfer pricing risks and risks related to base erosion and profit shifting. Where appropriate, it can also be used for economic and statistical analysis. The data from the country-by-country report may be used to make further enquiries into the affairs of multinational enterprise groups in the course of a tax audit and, then, to make adjustments to taxable income.

The information cannot be used as a substitute for a detailed transfer pricing analysis of individual transactions and prices based on a full functional and comparability analysis.

In addition to its arrangement with the U.S., Canada has secured an extensive network of partners to exchange country-by-country reports with under the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports, signed by over 50 jurisdictions.