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Harmonizing Canada’s Transfer Pricing Landscape
A Close Look at the New Proposal in Line with the OECD TPG
In June 2023, the Canadian Department of Finance asserted that the existing form of Section 247 Canadian Income Tax Act resulted in an undue focus on intra-group contracts rather than the genuine substance of transactions. According to the Canadian Department of Finance’s, this emphasis has yielded situations where the allocation of profits between Canadian and non-resident taxpayers does not align with the true economic contributions of the involved parties. Therefore, a modernization of the transfer pricing rules is necessary.
1. Introductory Remarks
On June 6th, 2023, the Department of Finance released a “Consultation Paper” aimed at gathering input from stakeholders regarding Canada’s transfer pricing legislation, in particular with the transfer pricing recharacterization rule (TPRR) in section 247(2)(b) and (d) of the Canadian Income Tax Act (ITA). The motivation behind these changes and the consultation process stems from the belief that Canada’s current transfer pricing legislation lacks clear guidance in applying the arm’s-length principle (ALP). Additionally, the rules have not undergone revisions since their inception in 1997.
The decision by the Canadian Department of Finan...