The Possible Future of TIEAs

Canada currently has 23 tax information exchange agreements (TIEAs) in force, 2 TIEAs that have been executed but are not yet in force, and 5 TIEAs under negotiation. In a post-BEPS world, are TIEAs being overshadowed by recent multilateral agreements? Or is it possible that the introduction of the Multilateral Convention To Implement Tax Treaty Related Measures To Prevent Base Erosion and Profit Shifting ("the multilateral instrument," or MLI) has made TIEA countries appear more attractive for investment by certain Canadian multinationals?

Canada began to enter into TIEAs with other countries when the aptly named "carrot-and-stick" provisions in the 2007 federal budget encouraged tax-haven non-treaty countries to share taxpayer information with Canada. However, many countries with which Canada has TIEAs are now also signatories to recent multilateral information-sharing agreements—notably, the Convention on Mutual Administrative Assistance in Tax Matters and the Multilateral Competent Authority Agreement (together referred to herein as "the multilateral agreements"). Canada is a signatory of both multilateral agreements.

Unlike TIEAs, the multilateral agreements allow for the automatic exchange of information between multiple jurisdictions—not merely on request, as typically provided in article 5 of a TIEA. The automatic exchange of information approach in the multilateral agreements reduces the cost of obtaining the information and greatly expands the set of taxpayers for which such information is available. Although the OECD published a model protocol that may be adopted by jurisdictions to expand the scope of an existing TIEA and allow for the spontaneous exchange of information, there appears to be no guarantee that TIEAs will be amended in such a manner. In fact, the OECD itself states in the background to the model protocol that it expects jurisdictions to exchange information on the basis of the multilateral agreements, not TIEAs. Therefore, it is unclear how TIEAs fit in and what steps, if any, should be taken to keep TIEAs relevant in today's post-BEPS tax climate.

In the meantime, as long as TIEAs remain in force, certain Canadian-based multinationals with relatively adaptable and mobile business models that want to repatriate exempt surplus to Canada may prefer to locate their more substantive offshore operations in TIEA jurisdictions instead of treaty countries, subject to commercial constraints. This strategy delivers the desired repatriation benefit, yet avoids the complexity of the MLI and, in particular, the ambiguity of its principal purpose test. However, is the use of TIEAs in this way inconsistent with their original purpose and intention, and subject to being perceived as circumventing the authority of the MLI?

Shaira Nanji and Nadia Virani
KPMG LLP, Calgary
[email protected]
[email protected]

Canadian Tax Focus
Volume 8, Number 2, May 2018
©2018, Canadian Tax Foundation