On March 22, 2016 the Canadian Minister of Finance tabled the 2016 Budget. In Chapter 8 “Tax Fairness and a Strong Financial Sector” of the 2016 Budget several measures are proposed to prevent evasion/aggressive tax planning and to improve tax compliance.
The proposed measures include a.o.:
· Budget 2016 proposes to invest $444.4 million over five years for the CRA to enhance its efforts to crack down on tax evasion and combat tax avoidance by: hiring additional auditors and specialists; developing robust business intelligence infrastructure; increasing verification activities; and improving the quality of investigative work that targets criminal tax evaders.
· Budget 2016 proposes new legislation to strengthen transfer pricing documentation by introducing country-by-country reporting for large multinational enterprises;
· The Canada Revenue Agency is applying revised international guidance on transfer pricing by multinational enterprises, which provides an improved interpretation of the arm’s-length principle; and
· Canada is participating in international work to develop a multilateral instrument to streamline the implementation of treaty-related BEPS recommendations, including addressing treaty abuse.
· The Canada Revenue Agency will also undertake the spontaneous exchange with other tax administrations of tax rulings that could potentially give rise to BEPS concerns (The Canada Revenue Agency will commence exchanging tax rulings in 2016 with other jurisdictions that have committed to the minimum standard).
· Extend the application of the income tax back-to-back loan rules to royalty arrangements, and introduce a similar set of rules in the shareholder loan rules; and
· Prevent unintended, tax-free cross-border distributions of capital to non-residents by narrowing the application of an existing exception to the cross-border anti-surplus-stripping rule.
In Budget 2016 it is also announced that in the near future the Canadian Government will issue legislative proposals for public comment with respect to the implementation of the automatic exchange of information with respect to financial accounts held by non-residents, under the framework of the Common Reporting Standard developed by the OECD
Click here to be forwarded to the Canadian Budget 2016 as available on the website of the Government of Canada, which will open in a new window.
Click here to be forwarded to Chapter 8 “Tax Fairness and a Strong Financial Sector” of the 2016 Budget as available on the website of the Government of Canada, which will open in a new window.
Next to the Budget 2016 the Canadian Ministry of Finance also published a document titled: “Tax Measures: Supplementary Information”. This is a very useful document providing more information on the items mentioned above.
In the Paragraph International Tax Measures of the document “Tax Measures: Supplementary Information” the following topics are discussed:
· Base Erosion and Profit Shifting;
o Transfer Pricing Documentation – Country-by-Country Reporting;
o Revised Transfer Pricing Guidance;
o Treaty Abuse;
o Spontaneous Exchange of tax Rulings;
· Cross-Border Surplus Stripping;
· Extension of the Back-to-Back Rules;
o Back-to-Back Rules for Rents, Royalties and Similar Payments;
o Character Substition Rules;
o Back-to-Back Shareholder Loan Rules;
o Multiple-Internediary Structures;
Click here to be forwarded to the document “Tax Measures: Supplementary Information” as available on the website of the Government of Canada, which will open in a new window.
Click here to be forwarded the Budget 2016 page as available on the website of the Government of Canada, which will open in a new window.
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