Transfer Pricing Proposals Infuse Canada's Tax Laws With OECD Concepts

Canada's transfer pricing rules ensure that, for Canadian income tax purposes, the pricing of non-arm's length cross-border transactions adheres to the pricing that arm's length parties would have used in similar transactions. In cases decided over the last two decades, Canadian courts have consistently held that these rules operate so as to respect the legal underpinnings of the transactions undertaken by the parties, requiring only the elimination of price distortions arising from the non-arm's length relationship.

In Budget 2021, the federal government announced that it intended to undertake a public consultation on Canada's transfer pricing rules because it was concerned about the guidance issued by the courts in one such decision, the Cameco case, from which the government's application for leave to appeal to the Supreme Court had been denied. The resulting consultation paper was released in June 2023 and included draft legislative amendments.