June 14, 2023
Canada's Department of Finance releases consultation paper on transfer pricing rules
On 6 June 2023, the Department of Finance released a consultation paper titled "Consultation on Reforming and Modernizing Canada's Transfer Pricing Rules." The consultation paper, which follows through on the commitment made in the 2021 federal budget to review these rules, includes draft revisions to section 247 of the Income Tax Act (the Act), as well as potential administrative measures, and requests comments from stakeholders by 28 July 2023.
Shortly, EY will release a more extensive Tax Alert reviewing the content of the consultation paper in detail.
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 applying the arm's-length principle in Canada. In addition, the consultation gives stakeholders 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 consultation paper poses a series of 23 questions requesting specific input from stakeholders. Appendix A of the consultation paper outlines draft legislative measures, some of which would:
Other administrative measures considered in the consultation paper for which input is requested include these potentially significant developments:
The substantive elements of Canada's transfer pricing rules have not been revised since they were introduced in 1997. The Department of Finance consultation paper provides an opportunity for stakeholders to offer input on this very important component of Canadian tax law.
EY will review the consultation paper in greater detail and provide comments to the Department of Finance.
For more information, please contact your EY or EY Law advisor or one of the following professionals:
Ernst & Young LLP (Canada), Toronto
Ernst & Young LLP (Canada), Ottawa
Ernst & Young LLP (Canada), Quebec and Atlantic Canada
Ernst & Young LLP (Canada), British Columbia
Ernst & Young LLP (Canada), Prairies
EY Law (Canada)
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor