Subpart A.—Tax Conventions and Other Related Items

Canadian Memorandum of Understanding on Mutual Agreement Procedure

Announcement 2005–47

The following is a copy of the News Release issued by the Director, International (U.S. Competent Authority) on June 15, 2005 (IR–2005–66).

Memorandum of Understanding Between the Competent Authorities of the United States and Canada Regarding the Mutual Agreement Procedure

IR–2005–66, June 15, 2005

WASHINGTON - On June 3, 2005, the Competent Authorities of the United States and Canada entered into a Memorandum of Understanding (MOU) to establish principles and guidelines to improve the performance and efficiency of the mutual agreement procedure (MAP) process in accordance with the terms set forth in the United States — Canada In- come Tax Convention (1980), as amended from time to time.

The fundamental purpose of the mutual agreement procedure is to endeavor to resolve double taxation or taxation contrary to a convention. Upon making a MAP request, the taxpayer places responsibility for a principled and timely resolution of the issue in the hands of the respective Competent Authorities and the manner in which the resolution of double taxation is accomplished is at the discretion of the Competent Authorities. It is for this reason the two Competent Authorities have reached the understandings outlined in the MOU.

The text of the Memorandum of Understanding is as follows:

MEMORANDUM OF UNDERSTANDING BETWEEN THE COMPETENT AUTHORITIES OF CANADA AND THE UNITED STATES REGARDING THE MUTUAL AGREEMENT PROCEDURE

The Director General, International Tax Directorate, Canada Customs and Revenue Agency (CCRA), Competent Authority for Canada and the Director-International, Large and Medium Size Business (LMSB), Internal Revenue Service (IRS), Competent Authority for the United States through this Memorandum of Understanding (“MOU”) agree to establish principles and guidelines to improve the performance and efficiency of the mutual agreement procedure (“MAP”) process in accordance with the terms set forth in the Canada-United States Income Tax Convention (1980), as amended from time to time (the “Convention”).

Purpose of the MAP

The fundamental purpose of the MAP is to endeavour to resolve double taxation or taxation contrary to a convention. Upon making a MAP request, the taxpayer places responsibility for a principled and timely resolution of the issue in the hands of the respective Competent Authorities and the manner in which the resolution of double taxation is accomplished is at the discretion of the Competent Authorities. It is for this reason that the two Competent Authorities have reached the following understandings:

I. Emphasis on Reaching Agreement . The Competent Authorities for Canada and the United States are committed to the principle that the resolution of double taxation or taxation contrary to the Convention should be possible in all cases. To improve the MAP process between our two countries, the Competent Authorities agree to adhere to the following principles and guidelines when seeking to reach a resolution in a particular case:

A. Positions shall be Principled, Reasonable and Consistent . The

positions advanced by the Competent Authorities in each case should be well documented, have merit, and follow the principles of consistency and reciprocity. Consistency means the Competent Authorities will strive to ensure that similar cases are resolved in a similar manner. Reciprocity means the adjusting Competent Authority in a particular case should only advance a position that it would be prepared to accept if it were the relieving Competent Authority.

B. Agreement on the Facts . The Competent Authorities recognize the importance of reaching agreement on the facts in MAP cases. Disagreements on the facts as to the nature of a taxpayer’s business operations can cause, or contribute to, difficulties in resolving a MAP case. Generally speaking, the Competent Authorities shall accept a transaction as structured by the taxpayer and only consider disregarding or restructuring a transaction in exceptional cases.

If the Competent Authorities are unable to obtain agreement on the underlying facts and circumstances of a particular MAP case after six months of negotiations, they shall agree to refer the case to a joint panel comprised of tax administration officials chosen by the Assistant Commissioner of Appeals for the CCRA and the Chief of Appeals for the IRS. An agreement reached as to the facts of the case will be binding on the respective MAP organizations. The details of this procedure will be set forth in a separate MOU between the Competent Authorities.

The Competent Authorities agree to consider conducting joint site visits with taxpayers in specific

2005–28 I.R.B. 71 July 11, 2005