Canada’s basic view is that small business owners should only be taxed once. All too often, however, small business owners find themselves the victims of double taxation. This is where the Canada Revenue Agency’s Canadian Competent Authority can help. There’s also a special program specifically designed to help small businesses avoid double taxation through unilateral advanced pricing arrangements.
What Is Double Taxation?
Double taxation refers to paying a tax on income from the same source twice. For example, income may be taxed once where a product is sold and again when that income is brought back to Canada. This kind of double tax hurts business profitability, especially if your larger competitor is enjoying the benefits of tax treaties and advanced pricing arrangements.
Tax Treaties and Advanced Pricing Arrangements
Canada has tax treaties with countries around the world. The primary goal of a tax treaty is to reduce or eliminate double taxation. Tax treaties generally include information about the country the taxpayer is in, the types of income each country can tax, and tax treatment for specific types of income. Each treaty has a certain pricing agreement in place, and these agreements are referred to as advanced pricing arrangements. According to the 2014-2015 Advanced Pricing Arrangement Program Report 248 successfully concluded advanced pricing arrangements were in place at the end of the 2014-2015 tax year. Advanced pricing arrangements involving automobile and other transportation equipment represented 18% of the arrangements that were the process of being reviewed; the computers and electronics sector and the chemical and allied industry represented 11% of cases. Visit the Department of Finance’s website for regular updates on foreign tax treaties.
What Is the Canadian Competent Authority and How Can It Help You?
The Canadian Competent Authority offers a free service to all businesses with questions about international tax treaties. The Canadian Competent Authority also helps to resolve disputes related to tax treaties and advanced pricing arrangements in a way that’s consistent with the Income Tax Act. This dispute resolution process is referred to as the Mutual Agreement Procedure. Any business seeking a Mutual Agreement Procedure resolution or treaty benefits from the Canadian Competent Authority must formally request assistance. Specific requests for assistance or renewals may be sent to the CRA’s Competent Authority Services Division. Guidance on how to make the request and what to include in the request can be found on the CRA’s website. The request is then reviewed and an acknowledgement letter is sent out. You can also submit requests for renewals, but you have to submit them at least six months before grant benefits expire.
What Is the Canadian Competent Authority Doing for Small Businesses?
The original program offered by the Canadian Competent Authority was only intended for large multinational corporations. Complaints accused the CRA of screening small businesses out of a process that saved multinationals a lot of money. That’s why Canada created a program for small businesses with gross revenues of less than $50 million. The program helps small businesses streamline the process and reduces costs. Consider that a small businesses applying for an advanced pricing arrangement are exempt from site visits, but multinational companies must pay for site visits and all advanced pricing arrangement-related travel. In addition, the average time to accept the request is 12 months as opposed to 48 months. International tax legislation can affect profitability, job creation, plant location, and a host of other business decisions, but your business can get help from the CRA’s Canadian Competent Authority.