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Canada Joins Fight Against International Tax Avoidance

Canada Joins Fight Against International Tax Avoidance.jpg
Canada Joins Fight Against International Tax Avoidance.jpgSince the global financial crisis, governments have been cooperating on an unprecedented level to combat tax avoidance.

Canada is certainly no exception, having recently adopted two key multilateral information exchange mechanisms.

On 15 April 2016, the Canadian Department of Finance released draft legislative proposals for consultation, to implement the Common Reporting Standard (CRS) from 1 July 2017 allowing the first exchanges of information to take place in 2018. 

The Common Reporting Standard

Upon implementation, Canadian financial institutions will be required to have procedures in place to identify accounts held by non-residents. They would then need to report certain information to the Canada Revenue Agency (CRA).

According to the CRA, as the agency formalizes exchange arrangements with foreign jurisdictions, the information would begin to be exchanged on a reciprocal, bilateral basis with the jurisdiction in which the account holder is resident. However, the CRA said it will only do so having verified that each jurisdiction has appropriate capacity and privacy safeguards in place.

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Swiss Joint Declaration

Even before Canada put the draft CRS law to public consultation, it had agreed a joint declaration with Switzerland  to automatically exchange financial account information. This agreement, signed on 5 February 2016, commits the two countries' tax administrations to cooperating through the CRS Multilateral Competent Authority Agreement to which both countries are parties.

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The Multilateral Competent Authority Agreement on CbC Reporting

Canada will also be able to share information contained in transfer pricing country-by-country (CbC) reports with tax treaty partners that have implemented the necessary reporting standards, after Canada signed the Multilateral Competent Authority Agreement on CbC reporting on 13 May 2016.

According to the CRA, the information will enable countries to improve their ability to audit and detect aggressive international tax avoidance, and help to ensure that the global operations of affected companies are more transparent and that they pay appropriate taxes in the countries where their profits are generated.

To date, 39 jurisdictions have signed the CbC MCAA, with more expected to follow in the months ahead.

The signing followed Canada’s decision to adopt CbC reporting along the lines recommended by the OECD under Action 13 of its final BEPS (base erosion and profit shifting) project recommendations.  As a result, the Canada-based parent of multinational companies with annual consolidated group revenues of $750m or more will be required to file CbC reports on an annual basis. CbC reports must include details on a group's revenues, profit, taxes paid and accrued, number of employees, capital, retained earnings, and tangible assets for each tax jurisdiction in which they do business.

Concerns have been expressed about the vulnerability of sensitive corporate information under the CbC reporting and information exchange systems. However, Canada is just one of many countries that have forged ahead with these new requirements regardless.

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