The Competent Authorities Should Agree That The Canadian TFSA Has The Same Treaty Status As The US Roth IRA

2018 Prologue

In 2018 I wrote a post arguing that it is reasonable to conclude that the text of the Canada US Tax Treaty should be interpreted to mean that a Canadian TFSA is – like a US ROTH IRA – a pension within the meaning of the Canada US Tax Treaty. The 2018 post was arguing for equal treatment without the intervention of the respective Canadian and American Competent Authorities.

The Punitive Taxation Of US Citizens Living Outside The United States Continues

I have previously and repeatedly made the point that:

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A taxpayer who is a U.S. resident for purposes of a U.S. income tax treaty is generally entitled to request assistance from the U.S. “competent authority” where the actions of a treaty country or the United States would (i) cause double taxation or (ii) taxation that is inconsistent with the treaty.  Competent authority assistance is only available with respect to countries that have an applicable tax treaty with the United States.  Our Treaty Resource Page provides an overview of every U.S. tax treaty and the tax system of each such country.

A taxpayer seeking assistance from the U.S. competent authority should always first consult any applicable treaty articles, including the Mutual Agreement Procedure (MAP) article, before requesting assistance.  In addition to filing a request for assistance with competent authority, the taxpayer should consider (i) filing a timely protective claim for credit or refund; and (ii) take any required actions that are necessary under the procedures of the foreign country to avoid losing the right to appeal or obtain competent authority review under that country’s income tax laws.

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Transfer Pricing Exams & IRS Preparedness Measures

In this fourth article in our Looming Transfer Pricing Exams & IRS Preparedness Measures series, we briefly summarize the IRS’s Transfer Pricing Examination Process (TPEP) Resolution Phase, which is the final phase of the TPEP’s three phases, and we list extrajudicial taxpayer courses of action such as Appeals.

The goal of the Resolution Phase is to reach agreement on the tax treatment of each transfer pricing issue examined. Important parts of the Resolution Phase include the IRS’s presentation of the issue and its resolution, case closing, and when necessary, issuing a Revenue Agent Report with adjustments, penalties (if the taxpayer failed to timely provide documentation), and tax liability.

The TPEP instructs the issue team to provide the taxpayer an opportunity to agree or disagree with the findings for each transfer pricing issue developed during the examination. For a transfer pricing issue to be resolved, there must be an open discussion between the issue team and the taxpayer in three areas: 1) factual development, 2) the law(s) that applies to the facts, and 3) each party’s interpretation of the law(s). The issue team should meet with the taxpayer to discuss all issues and determine whether a “principled resolution” can be reached. If a field resolution is not reached, the issue team will finalize the Notice of Proposed Adjustment (“NOPA”) and Economist Report.

The TPEP discusses options that the taxpayer can pursue, including Appeals,[1] and when a tax treaty country is involved, U.S. Competent Authority (CA) requests, Accelerated CA Procedures to cover subsequent taxable years, and Simultaneous Appeals Procedures whereby Appeals works jointly with the Advance Pricing and Mutual Agreement (APMA) Program and the taxpayer prior to APMA’s consultations with the foreign CA(s). Taxpayers may request CA assistance after receiving a NOPA and are not required to wait until the conclusion of an examination to file a CA request. If APMA accepts a CA request, it will assume jurisdiction over the transfer pricing issues. Otherwise, the case remains under the jurisdiction of the issue team.

We invite you to read our article Six Time-Tested TPEP Takeaways where we share pertinent insights that are even more important today than a few years ago when the TPEP was still hot off the press.

Stay tuned for the next blog post in this series, where we discuss the IRS’s April 2020 transfer pricing guidance, Transfer Pricing Documentation Frequently Asked Questions (FAQs).

If you have any questions or would like more information on the issues discussed in this article, please contact the authors:

Guy Sanschagrin, Principal in Charge of Transfer Pricing and Valuation Services, WTP Advisors (Minneapolis, MN, USA) guy.sanschagrin@wtpadvisors.com

Doug Schwerdt, Transfer Pricing and Valuation Specialist, WTP Advisors (Houston, TX, USA) doug.schwerdt@wtpadvisors.com

 

Read Blog Post Part 1 in this Series

Read Blog Post Part 2 in this Series

Read Blog Post Part 3 in this Series

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[1] The TPEP reaffirms that the IRS requires 365 days to remain on the statute of limitations for taxpayers to request Appeals consideration.