Transfer Pricing - Canada

Canadian transfer pricing adheres to the “arm’s length principle” as developed and framed by the OECD, which is meant to be adopted in section 247 of the Income Tax Act (ITA). Specifically, Canada adheres to the “arm’s length principle” for measuring the income of Canadian taxpayers arising from transactions with non-arm’s length non-residents.

The OECD Guidelines and the CRA’s administrative statements on transfer pricing in the Information Circular (originally and as revised) as well as other related CRA publications have a significant practical influence on the administration of transfer pricing tax law in Canada and have been judicially considered.


Transfer Pricing in Canada

The Canadian transfer pricing “rule”, found in section 247 of the ITA, applies to any transfers of property or services between a Canadian resident person and a non-resident person with whom the Canadian resident does not deal at arm’s length. Section 247 of the ITA is meant to encapsulate the arm’s length principle as it is applied in Canadian tax law, according to a primarily transaction-based pricing approach to transfers of property, the delivery of services and cost sharing arrangements that are “qualifying cost contribution arrangements”.

Not Applicable

The Canadian documentation rules arise under Canadian law and practice, influenced by the OECD Guidelines. Every taxpayer involved in related party transaction should prepare transfer pricing documentation. There is no revenue threshold. The Canadian transfer pricing documentation requirements are set out generally in subsection 247(4) of the ITA and in relevant administrative guidance published by the CRA with respect to reporting documentation, although useful inferences can be derived from specific situations in which analysis and documentation are uniquely required, such as for “advance pricing agreements”. The transfer pricing analysis is expected to be “contemporaneous” with the transactions undertaken and the tax year in which they occur. Documentation is required to be updated annually for any changes in its aspects. Generally, a taxpayer has a primary, positive obligation to satisfy the tax authorities of its compliance with the ITA, and in that sense, the taxpayer has the “burden of proof” concerning the adequacy of its transfer pricing.

Documentation must be prepared by a taxpayer’s tax reporting/return filing date (generally, 6 months after the end of the taxation year) and provided to the CRA within 3 months of a request to provide it.

The CbC template reporting form adopted by Canada, RC4649, is substantially the same as that recommended by the OECD in the final Action 13 report. The reporting required by section 233.8 of the ITA applies to MNE fiscal years commencing on or after 1 January 2016 and the CbC report for a taxation year just be filed within 12 months of the last day of the reporting year of the reporting year; the earliest reporting date then will be 31 December 2017 for a 31 December 2016 fiscal period.

CbC reporting is required for MNE groups with consolidated group revenue of EUR 750 million or more based on consolidated financial statements for the immediately preceding fiscal year. Canadian resident “ultimate parent entities” (UPEs) primarily are required to do CbC reporting. The Canadian CbC report, RC4649, is required to be filed within 12 months of the end of the reporting year.

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Gyan Prakash Srivastava [MBA, LL.B.]

Leader - South Asia Practice
17+ years experience in Global Transfer Pricing Documentation, Litigation, BEPS compliance & advisory. During his tenure with PwC & Deloitte he has worked for marquee clients. Gyan specializes in assisting clients in developing cross border business models based on on-ground commercial facts and legal issues.

Udit Gupta [MIA, CA]

Principal North America Practice

12+ years experience in Transfer Pricing & International Taxation in multiple jurisdictions including S.E Asia, USA and India. He has worked with Deloitte Haskins & Sells, Malaysia and with Ernst & Young in Transfer Pricing division.

He is a member of Malaysian Institute of Accountants with enriched experience in Malaysian Transfer Pricing Documentation.

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