ICCC's Webinar - Thursday Talks - 14: Transfer Pricing

Awareness on Transfer Pricing Compliance

Transfer Pricing is setting of the price for goods and services sold between related legal entities with an enterprise. For instance, if a subsidiary company sells goods to a parent company, the cost of those goods is the transfer price. Any company that has an office in more than 1 country and is transacting with its subsidiary or parent company, is liable to maintain TP reports.

The Canadian statutory rules on transfer pricing are administered by the Canada Revenue Agency (CRA) and are contained in sec 247 of Canadian Income tax act (ITA). The CRA’s administrative policy with respect to enforcing Canada’s transfer pricing rules had been summarized in Information Circular 87-2R, International Transfer Pricing (IC 87-2R). Effective December 30, 2019, the CRA “cancelled” IC87-2R and moved it to an archive section of its website, without offering a replacement.

According to a Notice to Tax Professionals released by the CRA on February 26, 2020, IC 87-2R was cancelled because it was inconsistent with the interpretation and application of Canadian transfer pricing legislation, and did not reflect updated guidance from the OECD. Changes in Canadian transfer pricing rules may be coming soon, either in response to the Cameco decision or to the OECD’s Pillar One and Pillar Two proposals.

Penalty on documentation failure

If taxpayer does not make reasonable efforts to determine ALP (under section 247(3)), the prescribed penalties include

• 10% penalty will be imposed where amount of Transfer pricing capital and income adjustments for a taxation year – exceeds 10% of gross revenue as per 247(3)(b)(i) or exceed CAD 5 million.
  
  
• Taxpayer will not be considered to make reasonable efforts if does not meet contemporaneous documentation criteria set out in sec 247(4) as below: (list is not exhaustive)
  
  
• Due date to submit this documentation – taxpayer provide these documents within 3 months after being served with a written request to do so.
  
  
• Penalty on failure of reporting requirement
  
  
• If taxpayer fail to comply with T106 reporting and filing requirements, the range of penalty is

Panelists

Therese Garcia	Vinu Subramaniam	Udit Gupta
Partner,	Senior Manager,	Senior Partner
Transfer Pricing	Deloitte Canada	Legal Quotient
BDO Canada		Consultants

Interactive Session

Pramod Goyal
President, ICCC