Navigate CRA's Section 247 mandates with precision. Ensure your documentation meets the 3-month submission deadline and protects against the 10% penalty regime.
Book Free Consultation
Transfer pricing in Canada is strictly governed by Section 247 of the Income Tax Act. The Canada Revenue Agency (CRA) emphasizes the "contemporaneous" nature of documentation, which must be prepared by the entity's tax filing deadline.
The CRA has intensified focus on Intangible Property (IP) transfers and management fees. With the recent legislative updates, the CRA's ability to recharacterize transactions has been further clarified to align with the revised OECD Guidelines.
Once requested by the CRA, contemporaneous documentation must be submitted within exactly 3 months. No extensions are permitted under the law.
Adjustments exceeding $5 million or 10% of gross revenue trigger an automatic 10% penalty if documentation is deemed insufficient.
Mandatory annual filing for non-arm's length transactions with non-residents exceeding $1 million in total value.
The 6-month post-year-end deadline.
To avoid penalties, documentation must be prepared by the tax return filing deadline (usually 6 months after year-end).
It must provide a complete description of the transactions, functions performed, risks assumed, and the method used to determine arm's length pricing.
Alignment with international standards.
Canada has adopted the Master File/Local File approach. The Local File must specifically address Canadian operations, while the Master File covers the global MNE group.
CRA scrutiny often focuses on whether the Canadian entity's functional profile matches the global group's profit allocation.
Threshold for groups over €750 Million.
MNE groups with annual consolidated revenue of €750 million or more must file a Country-by-Country (CbC) Report.
For Canadian-parented groups, this must be filed with the CRA within 12 months of the fiscal year-end.
Accurate preparation and filing of the annual Information Return.
Strategic management of CRA queries and formal requirements to provide info.
Negotiating Advance Pricing Agreements to secure long-term tax certainty.
Valuation of intangibles and DEMPE analysis for cross-border licensing.
CRA audits are rigorous and data-driven. Ensure your documentation is contemporaneous and defensible before the 3-month clock starts.
Contact Canada TeamFor further information on transfer pricing please contact:
Leader - TP Policy
Principal North America Practice