Part II. Treaties and Tax Legislation

any, upon either the closure or relocation of a business and the allocation of associated closing costs; and

and residence country’s laws are in conflict.

The Competent Authorities express their commitment to reach an agreement establishing guidelines to be applied to resolving cases involving the issues identified above as well as other issues that are identified and agreed to by the Competent Authorities. The Director General, International Tax Directorate, CCRA and the Director-International, LMSB, IRS will designate one or more representatives from their respective organizations to meet for the purpose of establishing such guidelines for the above issues as well as other issues that are identified and agreed to. Moreover, the Director General, International Tax Directorate, CCRA and the DirectorInternational, LMSB, IRS agree to designate one or more representatives from their respective competent authority organizations to meet at such time as new issues emerge that impede the resolution of MAP cases. The Director General, International Tax Directorate, CCRA and the Director-International, LMSB, IRS recognize that they may be required to look beyond their own Competent Authority organizations to find a designate elsewhere within their respective tax administration with the appropriate level of expertise to assist in developing guidelines.

Conclusion

Through the execution of this MOU, our respective Competent Authority organizations will initiate discussions as soon as possible to: (1) create a MOU to establish a binding procedure to determine the underlying facts and circumstances of a specific case; (2) create a set of guidelines to be used in resolving cases involving the above substantive issues that complicate case resolution; (3) identify and remove procedural obstacles that impede or delay the process of resolving double taxation cases; and (4) create a MOU to address a number of issues surrounding notification.

cases in an effort to reach agreement regarding the underlying facts and circumstances of a taxpayer’s business; however, it is recognized that the use of joint site visits must be prudent and judicious, due to resource limitations in each of the respective tax administrations.

C. Means of Resolving Cases . Despite the best efforts of Competent Authority officers, it is recognized that substantive differences on issues may complicate the ability to reach a resolution on a specific case even when there is an agreement on the underlying facts and circumstances of the case.

In these situations, Competent Authority officers shall look for appropriate opportunities to compromise. Compromise is often required when diverging views otherwise make resolution difficult to achieve.

If resolution is still not possible, the appropriate first level managers in the Competent Authority organizations will jointly undertake a detailed review of the case to ensure that all appropriate action has been taken to facilitate a resolution. If a MAP request has not been resolved within two years from the date of acceptance, the Director General, International Tax Directorate, CCRA and the Director-International, LMSB, IRS agree to meet, or, if more appropriate, agree to have their subordinates meet, in order to resolve the case.

II. Procedural Issues . Procedural issues may delay or impede the resolution of MAP cases. These issues could result from administrative policies, practices and procedures of the respective Competent Authority organizations.

A. Removal of Barriers . It is hereby agreed that administrative policies, procedures and practices

that impede or delay the process of resolving a MAP case will be identified and removed to the extent possible under the delegated powers of the Competent Authorities in their respective tax administrations.

B. Notification . The Competent Authorities also agree to interpret “notification” broadly under the Convention so as to reflect the intention to be as inclusive as possible when considering requests for MAP assistance. A separate MOU to be executed by the Competent Authorities will address a number of issues surrounding notification.

III. Substantive Issues in MAP Cases . The

Competent Authorities will follow the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations to resolve substantive issues in cases involving transactions between related parties. Notwithstanding, the Competent Authorities have identified a number of issues that have resulted, or could result, in a failure to resolve double taxation or taxation contrary to the Convention. These issues include, but are not limited to, the determination of:

to the point where a profit split method is appropriate and, if so, the relative value of contributions made by related parties toward the generation of profit;

gible assets and the determination of an arm’s length value;

ment (PE) exists and the amount of profit to be attributable to the PE;

characterized as a service versus a license of intangibles;

July 11, 2005 72 2005–28 I.R.B.

This MOU may be modified at any time by agreement between the Competent Authorities. The Competent Authorities agree to implement this MOU as soon as possible after signing this agreement. Either Competent Authority may terminate the MOU at any time by giving written notice to the other Competent Authority.

Other Provisions

The Competent Authorities for Canada and the United States agree to publish this MOU to demonstrate our mutual commitment to improving the MAP process.

This is a MOU between the Competent Authorities of Canada and the United States addressing procedural matters under the Convention. This MOU is not to be interpreted as creating any cause of action, rights or benefits in favor of third parties or taxpayers.

Competent Authority for Canada Competent Authority for the United States

Frederick R. O’Riordan Director General International Tax Directorate Canada Customs and Revenue Agency

Robert H. Green Director-International Large and Medium Size Business Internal Revenue Service

Date: Date:

2005–28 I.R.B. 73 July 11, 2005