The Department of Finance’s consultation paper provides an opportunity for stakeholders to have input on this very important component of Canadian tax law.ĮY will review the consultation paper in greater detail and provide comments to the Department of Finance. The substantive elements of Canada’s transfer pricing rules have not been revised since their original introduction in 1997. Introduction of streamlined pricing approaches for certain transactions, such as low value-adding intra-group services and distribution.Increased thresholds for transfer pricing penalties.
Potential adoption of a standardized OECD style Master File/Local File model for transfer pricing documentation.Provision of safe‑harbour interest rates or ranges.Introduction of de minimis transaction rules and exemptions for small taxpayers.Other administrative measures considered in the consultation paper for which input is requested include the following potentially significant developments: Inclusion of a “consistency” provision referencing the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.Replacement of the current “recharacterization” provision in paragraphs 247(2)(b) and (d) of the Act with an explicit “non‑recognition” test.Increased emphasis on the “conditions” of the delineated transaction or series to allow adjustment where the conditions are different from those that would have been included if the participants had been dealing with each other in comparable circumstances.Introduction of the phrase “comparable circumstances” to limit the hypothetical comparison for the delineated transaction versus what anytwo (or more) persons dealing at arm’s length would have agreed to.Revised definitions to improve legislative clarity, including the addition of new definitions for “economically relevant characteristics” and “multinational enterprise group”.In particular, Appendix A of the consultation paper outlines draft legislative measures, which include: The consultation paper poses a series of 23 questions requesting specific input from stakeholders. In addition, the consultation provides stakeholders with the opportunity to provide input on administrative matters connected to transfer pricing, such as documentation and penalty provisions and the possibility of adopting more modern or simplified approaches in specific situations. The main proposal concerns possible amendments to the transfer pricing adjustment rule in section 247 of the Act. These potential changes are intended to provide greater clarity on the application of the arm’s length principle in Canada.
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