Question 1
Tax practitioners are always interested to know what files the CCRA is examining. In this context, can you tell us what is new or current with regard to files involving tax avoidance?
Response 1
The most interesting files we have been pursuing lately can generically be categorized as treaty shopping situations.
Question 2
We hear about the term treaty shopping quite a bit. What does the CCRA consider treaty shopping to involve?
Response 2
In the context of tax avoidance, we consider treaty shopping to include transactions involving the establishment of residency in a particular jurisdiction by a taxpayer in order to avail itself to the provisions of that jurisdiction’s treaty for tax avoidance purposes.
Question 3
There is some question in the tax community whether or not CCRA can challenge these types of transactions. On what basis is CCRA in fact challenging these arrangements?
Response 3
One basis is to deny the benefits under the treaty under what is referred to as the abuse of treaties approach – that being that treaties have as their purpose the elimination of double taxation and the prevention of fiscal evasion. The Commentary to Article 1 of the OECD Model Tax Convention on Income and on Capital states, in part, at paragraph 9.4:
… it is agreed that states do not have to grant the benefits of a double taxation convention where arrangements that constitute an abuse of the provisions of the convention have been entered into.
A second basis to challenge such transactions is, of course, GAAR.
Question 4
So, which treaty shopping arrangements is the CCRA looking at?
Response 4
It is CCRA policy to challenge all treaty shopping arrangements.