Canada: BEPS update in Federal Budget 2017

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The Federal Budget 2017 will invest an extra amount of $523.9 million to develop tax compliance, prevent tax evasion and combat tax avoidance by raising verification activities, developing the excellence of investigative work focusing on criminal tax evaders, and improving the business intelligence infrastructure and risk assessment methods. Canada has worked jointly with the other members of the Organization for Economic Co-operation and Development (OECD) and the Group of 20 (G20) to improve measures to counter base erosion and profit shifting (BEPS). BEPS can take place as a result of international tax planning by multinational companies to artificially reduce their taxes.

The Canadian government is committed to protecting the efficiency of the tax system. Some measures have already been implemented and others are in the process of implementation. A number of measures have already been taken to comply with the minimum standards under the OECD BEPS recommendations. These are: legislation (enacted in December 2016) requiring large multinational companies to submit country-by-country reports; the development of a multilateral instrument (MLI) to streamline the execution of tax treaty-related BEPS recommendations including those addressing treaty abuse; and spontaneous exchange of tax rulings with other tax administrations. The MLI is designed to enable the signatories to modify the provisions of bilateral tax treaties to incorporate BEPS recommendations. There is an indication in Budget 2017 that the government is pursuing signature of the MLI and is also taking effective domestic measures to resolve tax treaty-related differences effectively and in a timely manner by developing the MAP process in Canada’s tax treaties.

Canada already has robust CFC rules and reporting requirements regarding certain tax avoidance transactions. Budget 2017 states that the CRA is applying the revised international transfer pricing guidance by multinational enterprises. The Government has stated that it will continue to work with its international partners to ensure a coherent and consistent response to tax avoidance through BEPS.

The government states that the automatic exchange of information with respect to financial accounts held by non-residents is an important tool to help compliance, combat international tax evasion, and ensure that taxpayers are reporting their income from all sources. Canada recently enacted legislation to implement the standard starting on 1st of July 2017. This will permit exchanges of relevant tax information with other countries from 2018.

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