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Global transfer pricing guide

Transfer pricing - Canada

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Introduction to transfer pricing in Canada
Transfer pricing rules
  • Canada’s transfer pricing law, Section 247 of the Income Tax Act (ITA), received Royal Assent on June 18, 1998. The transfer pricing rules apply to Canadian taxpayers and partnerships who transact with foreign related parties and contain no materiality threshold or exemptions.
  • The CRA provides significant specific transfer pricing guidance through transfer pricing memoranda (TPMs) and Information Circulars.
  • The positions described in CRA’s TPMs and Information Circulars are considered instructive, but not binding. In a domestic dispute context, Canadian Courts will rely directly upon the relevant statutory provisions and jurisprudence rather than the published views of the CRA.
OECD guidance
  • Although the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines) and related papers have been referenced in multiple Canadian transfer pricing court cases, the reports are not formally recognized by the Courts as authoritative. No reference is made to the OECD Guidelines in Section 247 of the ITA. Although not authoritative, courts as well as other dispute resolutions channels (including the CRA’s Appeals division and Competent Authority division) will usually consider the OECD principles when reaching a decision.
  • In practice, CRA’s administrative policies do place significant emphasis on the OECD Guidelines and related OECD material. Taxpayers are advised to adopt transfer pricing policies in alignment with the OECD’s principles and standards. Note that Canada is a member of the OECD and representatives from Canada participated in the working party groups that drafted OECD guidance.
Transfer pricing methods
  • In an international context (ie, cross-border), the CRA accepts the transfer pricing methods described in the OECD Guidelines, namely the comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split methods. Other methods can also be used if appropriate.
  • IC 87 2-R outlined the CRA’s views regarding the selection and application of transfer pricing methods, however it was cancelled in 2020 due to a lack of updates following revisions to the OECD Guidelines. The CRA’s views have been published in TPM 14 – 2010 Update of the OECD Transfer Pricing Guidelines; which, consistent with the cancelled IC 87 2-R, suggests that the CRA believes that a natural hierarchy exists in respect of the transfer pricing methods. The traditional transaction methods (ie, CUP, resale price, cost plus) are preferred over transactional profit methods. The CRA’s position is that method selection must consider the degree of comparability available under each of the methods and the availability and reliability of the data.
  • For domestic transactions (ie, intra-Canada), transfer pricing approaches consistent with the methods described by the OECD Guidelines are sometimes followed; however, limited guidance exists. Taxpayers are advised to refer to jurisprudence. Domestic transactions are not subject to the rules of Section 247 of the ITA and other tax provisions exist that address remuneration for transactions between non-arm’s length persons and expense reasonability.
  • Canada has a self-assessment regime. The onus is on the taxpayer to ensure that transfer pricing laws are adhered to. The CRA exercises discretion with respect to selecting Taxpayers for audit. Generally, audits are not conducted every year- though high-risk Taxpayers (see 'Risk factors', below) are advised to prepare for yearly audits as a contingency.
  • The statute of limitations is generally limited by subsection 152(4) of the ITA to four years (three years in the case of individuals, trusts, and Canadian-controlled private corporations) beginning after the day of mailing a notice of an original assessment or notification that no tax is payable. However, in transfer pricing cases, the period is extended by an additional three years (i.e., to six or seven years). An exception to this period applies in the case of misrepresentations, fraud, or if a waiver is filed. Certain of Canada’s tax treaties may limit treaty relief availability to a period of less than seven years. Taxpayers are advised to monitor such cases and provisionally file submissions to the Component Authorities where appropriate (see 'Dispute Resolution', below).
  • The Voluntary Disclosures Program (VDP) provides taxpayers with an opportunity to correct an incorrectly filed tax return or file an outstanding tax return that should have been filed. If a VDP application is accepted by the CRA, taxes owing plus interest in part or full are payable, however penalties may be waived. VDP applications relating to transfer pricing are automatically referred to a specialty group called the Transfer Pricing Review Committee.
  • Downward adjustments can be considered only in specific circumstances. Refer TPM 03R Downward Transfer Pricing Adjustments and IC71-17R6 Competent Authority Assistance under Canada’s Tax Conventions.

In addition to the requirement to adhere to transfer pricing laws, Taxpayers are also required to complete the T106 Information Return when filing a tax return if they have transactions greater than CAD 1,000,000 with non-resident related parties. Similarly, Country by Country Reporting (CbCR) Forms are required to be filed in certain cases (see 'Country-by-Country Reporting').

Transfer pricing documentation
Preparation of transfer pricing documentation
  • Taxpayers are not required to assemble an OECD Master File or a Local File for Canadian transfer pricing compliance purposes. Rather, Canadian transfer pricing documentation is prepared in reference to the transfer pricing documentation requirements stipulated under subsection 247(4) of ITA.

  • Subsection 247(4) of the ITA requires transfer pricing documentation contain a description that is complete and accurate in all material respects of

    • 247(4)(a)(i) the property or services to which the transaction relates,

    • 247(4)(a)(ii) the terms and conditions of the transaction and their relationship, if any, to the terms and conditions of each other transaction entered into between the participants in the transaction,

    • 247(4)(a)(iii) the identity of the participants in the transaction and their relationship to each other at the time the transaction was entered into,

    • 247(4)(a)(iv) the functions performed, the property used or contributed and the risks assumed, in respect of the transaction, by the participants in the transaction,

    • 247(4)(a)(v) the data and methods considered and the analysis performed to determine the transfer prices or the allocations of profits or losses or contributions to costs, as the case may be, in respect of the transaction, and

    • 247(4)(a)(vi) the assumptions, strategies and policies, if any, that influenced the determination of the transfer prices or the allocations of profits or losses or contributions to costs, as the case may be, in respect of the transaction.

  • Although transfer pricing documentation must be prepared by the tax return’s filing date, submission to the CRA is only required within three months of a written request being served. Generally, the CRA audit cycle follows an approximate two to three-year lag (e.g. generally 2017/2018 taxation years are being examined in 2020). Multiple tax years are frequently audited concurrently in transfer pricing cases.

  • In the absence of contemporaneous documentation as set out by section 247(4), the taxpayer may be deemed not to have made 'reasonable efforts' to determine appropriate transfer prices and may be subject to a penalty in the event of a transfer pricing adjustment. See TPM-09 – Reasonable efforts under section 247 of the Income Tax Act.

  • No documentation requirements exist for domestic transactions (i.e., intra-Canada transactions between persons not dealing at arm’s length).

Canada’s Country-by-Country Reporting
  • Canada has implemented Country by Country Reporting (CbCR) for Multinational Enterprises (MNE) groups with total consolidated group revenues of at least EUR 750 million in the preceding fiscal year. Canada’s CbCR filing obligations are described in subsection 233.8(3) of the ITA.
  • The deadline for filing CbCR in Canada is within 12 months after the end of the reporting fiscal year, or 30 days after receipt of the notification of systemic failure. There is no separate notification required to be filed. The reporting entity informs the CRA at the time of filing the CbCR whether it is the ultimate parent entity, the appointed surrogate parent entity or a constituent entity.
  • The CRA’s guidance on CbCR in Canada is provided in RC4651 Guidance on Country-by-Country Reporting.

Risk factors
  • The CRA does not make audit selection / screening procedures public. However, practitioners have observed particular scrutiny in cases of high transaction materiality (as per Form T106) and:
    • Checking 'No' to Question 6 in Part II of a T106 Slip – 'Have you prepared or obtained contemporaneous documentation as described in subsection 247(4) of the Income Tax Act for the tax year/ fiscal period with respect to the non-resident?'
    • Reported operating losses, or low profits, relative to industry averages.
    • Transactions with low tax jurisdictions.
    • Management fees or licensing fees paid to foreign parent entities.
    • Transactions involving corporate restructurings or hybrid debt
  • This is particularly the case for large corporations, as the likelihood of an annual corporate income tax audit is high.
  • If the taxpayer has not made reasonable efforts to determine and use arm’s length transfer prices, non-deductible transfer pricing penalties can be imposed pursuant to subsection 247(3) of the ITA, if the transfer pricing adjustment(s) exceeds the lesser of CAD 5 million or 10 percent of the taxpayer’s gross revenue. The penalty is calculated as 10 percent of the amount computed at subsection 247(3)(a) of the ITA. The application of transfer pricing penalties are considered by the Transfer Pricing Review Committee and are not automatic. See TPM-13 – Referrals to the Transfer Pricing Review Committee.

  • A primary transfer pricing adjustment may also give rise to a secondary adjustment which may levy withholding tax on the over or underpayment. TPM – 02 Repatriation of funds by Non-residents – Part XIII assessments sets out a procedure in which the Taxpayer may be granted relief from the secondary adjustment.

  • Penalties related to the T106 Form are:

    • Late filing – equal to the greater of CAD 100 and CAD 25 per day, as long as the failure to file continues, to a maximum of 100 days (i.e. $2,500) for each T106 slip.

    • Failure to file – CAD 500 per month, to a maximum of CAD 12,000 for each failure to comply. Where the CRA has served a demand to file the T106 Form, the minimum penalty is CAD 1,000 per month, to a maximum of CAD 24,000 for each failure to comply.

    • False statement or omission – CAD 24,000.

  • Failure to file the CbCR may also result in penalties up to CAD 12,000, or up to CAD 24,000 when demand is made.

Economic analysis and how to demonstrate an arm’s length result
Advance Pricing Agreements (APAs), dispute avoidance and resolution
  • Advanced Pricing Agreements (APAs) are written agreements between a taxpayer and the Minister of National Revenue to confirm the appropriate transfer pricing methodologies, in advance, and their application to specific cross-border non-arm’s length transactions or arrangements for specified period of time, under specified terms and conditions. See IC94-4R Advance Pricing Arrangements (APA), IC94-4RSR Advance Pricing Arrangements for Small Businesses, TPM-11 - Advance Pricing Arrangement (APA) Rollback. See also
  • In the event of a dispute, Taxpayers have 90 days from the date of the receipt of a notice of assessment to file a notice of objection (NOO) and pursue domestic resolution channels, including potentially escalating the matter to the Tax Court of Canada, Federal Court of Appeal, or even Supreme Court of Canada.
  • In practice, Taxpayers often pursue resolution through Competent Authority while holding the NOO in abeyance. The Canadian Competent Authority Services Division (CASD) is responsible the Canadian competent authority program. A taxpayer shall make a request to the CASD after receiving an adjustment made by the CRA within the time limits specified in the applicable tax convention. Canada has an extensive treaty network, and the Mutual Agreement Procedure (MAP) will often be available when double taxation occurs. On average, MAP cases take approximately two years to resolve. See also TPM-12 – Accelerate Competent Authority procedure (ACAP).
  • No exemptions exist for contemporaneous documentation requirements.
  • Taxpayers are exempted from filing the T106 Form if the amount of total reportable transactions for all the non-residents is less than CAD 1 million.
  • Taxpayers with total consolidated group revenues below EUR 750 million in the preceding fiscal year are exempted from filing the CbCR Form.
Related developments
CRA’s transfer pricing guidance documents
  • For a comprehensive listing of Canadian transfer pricing guidance documents, see
  • Note that Information Circular 87-2R International Transfer Pricing was cancelled effective December 30, 2019 due to its inconsistency with the CRA’s current interpretation and application of Section 247 of the ITA and the recent of the OECD Guidelines.

For further information on transfer pricing in Canada please contact:

T +1 416 360 5021

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Peter Kurjanowicz
T +1 416 369 7063


Daniel Kou
T +1 416 369 7052



Roderik Vehmeijer
T +1 416 607 8700



Karen Salsbury
T +1 416 369 7052



Kevin Koch
T +1 604 443 2137



Glen Haslhofer
T +1 403 260 2547





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Daniel Marion
T +1 514 954-4625

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Marie-Pierre Pelletier
+1 514 390 4267