Backgrounder — Advance Pricing Arrangements (APAs)

• Overview of APA Program
• Overview of Information Circular 94-4R

Overview of APA Program

An Advance Pricing Arrangement (APA) is a formal arrangement between the Minister of National Revenue and a taxpayer involved in cross-border transactions that are not at arm's length. APAs confirm, in advance, appropriate transfer pricing methodologies and their application to specific cross-border non-arm's length transactions or arrangements for specified periods of time, under specified terms and conditions, for purposes of the Canadian Income Tax Act.

When appropriate, the Canadian competent authority may enter into a Bilateral APA (BAPA) or Multilateral APA (MAPA) with its foreign counterparts under the mutual agreement procedure article of the relevant income tax treaty. The official designated as Canada's competent authority for these purposes is the Director General of the International Tax Directorate of the Canada Revenue Agency (CRA).

The CRA introduced its APA program service in July 1993. A summary of the process and related guidelines were published in Information Circular 94-4 on December 30, 1994. The revised version of the information circular reflects many developments that have occurred over the past years regarding transfer pricing. It also demonstrates the continuing commitment of the CRA to provide an effective and efficient means of determining cross-border transfer prices, resolving controversies, and reducing the possibility of double taxation.

Overview of Information Circular 94-4R

Information Circular 94-4R offers detailed guidance on the APA process, including definitions and sample documents. It reflects changes that improve service levels by reducing the length of time necessary, and therefore the costliness, of pursuing an APA. The revised circular includes new timing commitments throughout the APA process, case plans, a team concept, and requirements for more frequent communication among parties to an APA.

The revised version of the circular also addresses matters such as the coverage of issues similar or related to transfer pricing; rollbacks and on-time referrals; user fees; the linkage of the APA process to the new transfer pricing rules adopted in 1998; the use, disclosure, and protection of taxpayer information; the role of tax services offices; the co-operation of all participants; and the types of information to be submitted.

The information circular is accessible on the Internet at IC94-4R. You can order printed copies by calling 1-800-959-2221 or any tax services office.