Budget 2012: Transfer Pricing Amendments Proposed

The Income Tax Act (Canada) (the "Tax Act") contains an extensive set of transfer pricing rules designed to ensure that cross-border transactions entered into between Canadian taxpayers and non-residents with which they do not deal at arm's length are priced on an "arm's length" basis. For instance, where a Canadian-resident taxpayer has paid more than an "arm's length" price to a non-resident with which they do not deal at arm's length for a good or service, the transfer pricing rules can apply to increase the taxable income of the Canadian taxpayer by deeming the amount paid for such good or service to be equal to the applicable arm's length price. Such a pricing adjustment is generally referred to as a "primary adjustment".