Cross-Border Guarantees — Some Transfer Pricing Relief

Article by Chris Van Loan, ©2005 Blake, Cassels & Graydon LLP

This article was originally published in Blakes Bulletin on Cross-Border Taxation - March 2005

Transactions entered into between a Canadian taxpayer or partnership and a non-arm’s length non-resident are generally subject to the transfer pricing rules contained in section 247 of the Income Tax Act. If the terms and conditions, including any pricing arrangements, relating to such transaction are found to be different from those that would have been concluded between arm’s length parties, subsection 247(2) allows the Canada Revenue Agency (the CRA) to adjust the pricing of the transactions. The rules also permit the CRA to recharacterize such transactions where the structure utilized cannot reasonably be considered to have been adopted for non-tax reasons and such structure would not have been used by parties dealing at arm’s length.