Under Article XXVI, a U.S. citizen or resident may request assistance from the U.S. competent authority when the actions of Canada, the United States, or both, potentially result in double taxation or taxation contrary to the treaty. The U.S. competent authority may then consult with the Canadian competent authority to determine if the double taxation or denial of treaty benefits in question can be avoided.
If the competent authorities are not able to reach agreement in a case, binding arbitration proceedings may apply.
It is important that your request for competent authority assistance be made as soon as you have been notified by either Canada or the United States of proposed adjustments that would result in denial of treaty benefits or in double taxation. This is so that implementation of any agreement reached by the competent authorities is not barred by administrative, legal, or procedural barriers. For information that you should include with your request for competent authority assistance, see Revenue Procedure 2006-54, 2006-49 IRB 1035, available at www.irs.gov/irb/2006-49_IRB/ar13.html.
The request should be addressed to:
Deputy Commissioner (International)
Large and Mid-Size Business Division
Attn: Office of Tax Treaty
Internal Revenue Service
1111 Constitution Ave., NW
Washington, D.C. 20024
In addition to a timely request for assistance, you should take the following measures:
- File a timely protective claim for credit or refund of U.S. taxes on Form 1040X, Form 1120X, or amended Form 1041, whichever is appropriate. This will, among other things, give you the benefit of a foreign tax credit in case you do not qualify for the treaty benefit in question. For figuring this credit, attach either Form 1116 or Form 1118, as appropriate. Attach your protective claim to your request for competent authority assistance.
- Take appropriate action under Canadian procedures to avoid the lapse or termination of your right of appeal under Canadian income tax law.