Canada consulting on transfer pricing reform

Canada’s Department of Finance is consulting on reforming the country’s transfer pricing rules.

The main proposal concerns possible amendments to the transfer pricing adjustment rule in section 247 of the Income Tax Act. These changes would provide greater clarity on the application of the arm’s length principle in Canada in line with international consensus.

The first section discusses the international consensus on the application of the arm’s length principle as expressed in the OECD Transfer Pricing Guidelines.

The second section describes the current state of Canadian transfer pricing tax law in light of this consensus, whereas the third section outlines proposed amendments to section 247. The third section includes a discussion of a possible role for the OECD Transfer Pricing Guidelines in Canadian transfer pricing tax law and a potential non-recognition and replacement rule that would apply in specific situations.

The fourth section of the paper discusses administrative aspects of transfer pricing, including transfer pricing documentation, penalty provisions, possibilities for simplification or streamlining, and a discussion of the BEPS Action 13 “master file” requirement.

Comments on the consultation paper must be received by July 28.