McKesson Canada - A Transfer Pricing Treatise

The transfer pricing adjustment rules in subsection 247(2) of the Income Tax Act¹ apply when transactions undertaken by non-arm's length parties do not reflect arm's length terms and conditions. One of the most difficult questions in applying a prescribed transfer pricing methodology is how to appropriately determine an arm's length price for a sort of transaction that rarely occurs between arm's length parties. In McKesson,² the Tax Court found that an "other method" than those set out in the OECD Guidelines was the most appropriate method to use, leading to a highly technical economic analysis regarding the appropriate pricing of risk. The Court observed that the OECD Guidelines are written not only by persons who are not legislators, but are in fact the tax collection authorities of the world. The legal provisions of the Act govern and do not mandate the tests or approaches identified in the Guidelines.