Published: May 6, 2025
Introduction: The Mutual Agreement Procedure (MAP) Is A Dispute Resolution Mechanism For Cross-Border Tax Issues
Cross-border tax issues have become more and more common for Canadian taxpayers, whether they are individuals or corporations, as a quarter of the Canadian population is now immigrants. The most common type of cross-border tax issue is double taxation, which means that a taxpayer is being taxed more than once for the same transaction or property during the same period of time.
Double taxation often occurs when a bilateral treaty between Canada and another country allows both countries to tax a certain type of transaction. A less common situation of double taxation results from different characterizations of a transaction in Canada and in another country, when the applicable bilateral treaty fails to provide clarity or certainty on the relevant tax treatment of such a transaction.
To prevent double taxation, a common provision included in bilateral tax treaties provides countries with the option to resolve the double taxation or any cross-border tax issues via the Mutual Agreement Procedure (MAP). The MAP or the MAP Program is a service provided by a taxing authority, such as the Canada Revenue Agency (CRA).
The MAP in Canada is a dispute resolution mechanism that allows authorized CRA officials to interact and negotiate with foreign tax authorities to resolve issues of double taxation and taxation not in accordance with a bilateral tax treaty. Usually, taxpayers will make a request to initiate the MAP in the country of their tax residence.
This article examines and provides a general overview of the Mutual Agreement Procedure for Canadian taxpayers who may be facing double taxation issues. The sections below will explore in turn the basis of invoking the Mutual Agreement Procedure and challenging a decision issued for the MAP.
Invoking The Mutual Agreement Procedure (MAP)
To invoke the Mutual Agreement Procedure (MAP) in Canada, a taxpayer should be a tax resident in Canada. Then, the taxpayer must submit a formal request in writing to the CRA’s Competent Authority Services Division, International and Large Business Directorate.
The request should clearly identify the foreign country that is involved, outline the facts of the case, and explain how the taxation in question is not in accordance with the provisions of the relevant bilateral tax treaty. The taxpayer must also include supporting documentation such as tax assessments, relevant correspondence, and a detailed analysis of the treaty article(s) involved. Requests must generally be filed within the time limit specified in the applicable tax treaty.
It is essential to ensure the written request is complete and well-reasoned, as the Canada Revenue Agency will use this information to determine whether to accept the case and begin discussions with the foreign tax authority. While a taxpayer does not and cannot participate directly in the negotiations between Canada and the treaty partner, the taxpayer may be asked to provide additional information or clarifications.
Once the written request is accepted, the CRA will contact its counterpart in the foreign country to attempt to resolve the issue in accordance with the bilateral tax treaty. The CRA sets the target to process and complete the request under the MAP within 24 months, starting from the date on which the CRA receives the complete request. However, there is no guarantee as to the MAP processing time. For complex tax issues or for negotiations involving more than two competent authorities, the overall processing timeline can be much longer than 24 months.
If a resolution is reached, the CRA or the foreign taxing authority will make an offer to the taxpayer to detail the agreement reached. The relief is typically provided through adjustments to the taxpayer’s assessments in one or both jurisdictions. However, if no agreement is reached, the MAP process can be concluded without providing any relief to the taxpayer. It is therefore crucial for the knowledgeable Canadian tax lawyer for taxpayers to prepare a strong initial application and maintain open communication with the CRA throughout the process.
Appealing The CRA’s Decision After Invoking The Mutual Agreement Procedure (MAP)
It is quite the challenge to appeal a CRA decision after invoking the MAP, as a taxpayer is excluded from the negotiation and communication between the CRA and the foreign taxing authority. A taxpayer also cannot negotiate directly with the CRA to revise the offer, whether the offer is prepared by the CRA or a foreign taxing authority.
When a Canadian taxpayer intends to dispute a decision issued by the CRA, the last stage starts either with an appeal filed with the Tax Court of Canada or an application filed with the Federal Court of Canada.
To appeal a CRA decision after invoking the MAP, a taxpayer is required to file an application for judicial review. However, if a taxpayer rejects a CRA’s offer or an offer from a foreign competent authority, then the taxpayer is limited to seeking resolution via domestic options.
Domestic options available to the taxpayer to dispute a CRA decision depend on the stage and type of the taxpayer’s dispute, which can include a second independent review request, a judicial review application filed with the Federal Court of Canada, an objection filed with the CRA Appeals Division, or an appeal filed with the Tax Court of Canada. If no domestic options remain available, then the taxpayer is likely left with no option but to seek further relief.
CGI Holding LLC v Canada (National Revenue): When The Competent Authorities Are Unable To Reach A Mutual Agreement
In rare cases, two competent taxing authorities may not be able to reach a mutual agreement, resulting in the conclusion of a tax matter without resolving the double taxation issue. CGI Holding LLC v Canada (National Revenue), 2016 FC 1086, is an example of one of those cases.
CGI Holdings LLC (CGI), the Appellant, is a Delaware-based limited liability company. CGI received $142 million Canadian dollars in dividends in 2007 from a related Canadian corporation. Under subsection 212(2) of the Income Tax Act, the Canada Revenue Agency (CRA) withheld 25% of the dividend payment, totalling over $35 million Canadian dollars.
In 2010, a decision in TD Securities (USA) LLC v The Queen, led the CRA to revise its approach regarding Canadian dividends received by a US company, allowing a reduced 5% withholding tax in certain circumstances. CGI then claimed a refund of over $28 million based on the revised approach, which was denied by the CRA as it was statute-barred.
However, the CRA then considered the request under the Mutual Agreement Procedure (MAP) with the Internal Revenue Service (IRS). Unfortunately, the two authorities did not reach an agreement and concluded the request without providing CGI with an offer to dissolve the tax issue.
The Federal Court first confirmed that it had jurisdiction to review the administrative conduct of the CRA during the MAP in spite of the involvement of a foreign taxing authority. The court nevertheless found that the CRA’s decision to deny relief under the MAP was reasonable and no breach of procedural fairness was found.
As a result of this case, if a taxpayer believes the CRA has breached procedural fairness during the MAP or if a CRA’s decision under the MAP was unreasonable, the taxpayer is then entitled to apply for judicial review of the CRA’s conduct and decision. However, the Federal Court generally does not substitute the CRA’s decision, even if the CRA’s conduct or decision is found to be unreasonable.
If the Federal Court finds that the CRA breached procedural fairness during the MAP or if the decision itself was unreasonable, the court can quash the CRA decision and send it back to the CRA for reconsideration, which effectively requires the CRA to either restart negotiations with the foreign taxing authorities under the MAP or to revise its offer to the taxpayer.
Pro Tips – When Should You Invoke The Mutual Agreement Procedure?
The Mutual Agreement Procedure is a dispute resolution mechanism that is provided in many, if not all, bilateral tax treaties to resolve cross-border tax issues. When a taxpayer faces double taxation, for example, the taxpayer may need to invoke the MAP if domestic tax laws cannot provide the necessary relief.
For example, when individual taxpayers cease to be tax residents in Canada, they would be required to pay taxes on the deemed disposition of their foreign real estate properties. However, when they eventually sell their foreign real estate properties, they may get taxed again in that foreign country. When the applicable tax treaties fail to address such an issue, the individuals will need to invoke the MAP to resolve the double taxation.
If you believe that you need to invoke the Mutual Agreement Procedure (MAP) due to double taxation, you should engage with one of our expert Canadian tax lawyers. Our expert Canadian tax lawyers can provide legal advice, identify any potential issues and areas of concern, and assist you with the MAP application.
FAQ
What Does The Mutual Agreement Procedure Entail?
The Mutual Agreement Procedure is initiated by a written request from a taxpayer to a competent taxing authority. In Canada, such a request should be submitted to the Director, Competent Authority Services Division (CASD), International and Large Business Directorate. The request should also be accompanied by supporting documents, including but not limited to relevant tax assessments, proof of tax payments, and decisions issued by other CRA departments and/or a foreign taxing authority.
Once the request is submitted, the CRA intends to process and complete the request under the MAP within 24 months, starting from the date on which the CRA receives the complete request. However, there is no guarantee for the MAP processing time. For complex tax issues or for negotiations involving more than two competent authorities, the overall processing timeline can be much longer than 24 months.
Once the negotiation concludes between the relevant taxing authorities, the CRA or the foreign taxing authority will present an offer to settle the dispute. The taxpayer will be provided a specific period of time to review and consider the offer. Once an offer is accepted, it will be processed accordingly. If a taxpayer refuses an offer, then the taxpayer will need to seek domestic remedies for the existing issues.
Can I Refuse Or Negotiate An MAP Offer Made By The CRA?
A Canadian taxpayer always has the right to refuse a CRA’s offer under the Mutual Agreement Procedure. However, a taxpayer cannot negotiate a MAP offer made by the CRA or any competent authorities. The negotiation happened between the competent taxing authorities, usually without the involvement of the taxpayer. In other words, the taxpayer’s position may not be taken into account during the Mutual Agreement Procedure.
A taxpayer is also not privy to the negotiation process between the competent authorities. However, a taxpayer can refuse an offer and continue to resolve the dispute domestically. For example, a Canadian taxpayer, who is dissatisfied with a CRA’s offer under an MAP, can refuse the offer and object to the CRA’s decision. If the objection is unsuccessful, the taxpayer can then appeal the objection decision to the Tax Court of Canada or file a judicial review application with the Federal Court of Canada, depending on the types of tax matters.
Disclaimer: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.
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