CANADA Law and Practice Contributed by: Marc-André Godard, Pierre Allard, Isabelle Gagnon and Mehrez Houacine, BCF Business Law LLP
• the CRA accepted 97 new MAP cases and closed 76 MAP cases during that year; • the average time to complete a negotiable MAP case was 23.70 months; • of the 76 MAP cases closed in 2024, 50 (65.79%) resulted in full relief from double taxation upon negotiation, three (3.95%) had objections not justified, and four (5.26%) were resolved through unilateral relief – the remaining 19 cases (25%) were withdrawn by the taxpayer, were resolved via domestic remedy or without relief, resulted in partial relief of double taxation upon negotia - tion, resulted in no agreement, were denied MAP access, or had another unmentioned outcome; • of the 76 MAP cases closed in 2024, 55 (72.37%) were initiated from actions in Canada and 21 (27.63%) from actions in other countries; and • as of 31 December 2024, the CRA was engaged in negotiable MAP cases involving taxpayers from 35 different jurisdictions of which the United States represented 38.46%. 5. Taxation of Non-Local Corporations 5.1 Compensating Adjustments Under domestic law, upward and downward adjust - ments can be made to transfer pricing disputes. It should be noted that downward adjustments are made only if, in the opinion of the tax authorities, the circumstances indicate the adjustments are appropri - ate. Unless the issue is one that the CRA has decided not to consider, as a matter of policy, the CRA will accept a case under the MAP that involves a request for a downward adjustment in the following circumstances. • The upward adjustment has been accepted for consideration by the other jurisdiction. • The other jurisdiction takes steps to resolve the case under the MAP by reviewing the case, provid - ing the CRA with a detailed analysis as to why it agrees with the adjustment and agrees to negoti - ate the case. The request for competent authority assistance is made within the time limits of the applicable treaty.
If the above requirements are not met, the CRA will advise the taxpayer that their MAP case will be closed. 5.2 Local Branches and Local Subsidiaries A non-Canadian entity may operate in Canada through a subsidiary or a branch. Through a Canadian Subsidiary Assuming it is a resident of Canada for tax purposes, a Canadian subsidiary will be taxed on its worldwide income from all domestic law sources. In general, a corporation is a Canadian resident if it is incorporated or has its central management and control in Canada. Subject to treaty relief, the Canadian subsidiary will have to withhold tax on several types of payments to non-residents, including dividend distributions, inter - est paid to non-arm’s length parties, participating interest, certain management or administration fees and rents, as well as royalties and similar payments. Through a Canadian Branch Under the branch scenario, the non-resident corpo - ration will be liable for income tax on its Canadian- source business income at the same rates as Cana - dian-resident corporations. Moreover, and as a general rule, a 25% branch tax (which may be reduced under certain tax treaties to the rate applicable to dividend distributions) will apply to the after-tax profits of a non-resident corporation that are not reinvested in Canada. The branch tax is intended to approximate the with - holding tax that would have applied to taxable divi - dends from a Canadian subsidiary if the non-resident corporation had incorporated a Canadian subsidiary to carry on business in Canada instead of using a branch. 5.3 Capital Gains of Non-Residents Generally, Canada does not tax the capital gains real - ised by a non-resident on the disposal of shares in a Canadian-resident corporation. An exception to that principle applies if the disposed shares qualify as “taxable Canadian property”, which generally includes shares of corporations that are not
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