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Canada: Transfer pricing measures in federal budget

Canada: Transfer pricing measures in federal budget

Canada’s 2019 federal budget, presented on 19 March 2019, includes transfer pricing measures.

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Canadian transfer pricing rules govern the terms and conditions on which non-arm’s length entities may transact across international borders and embody the arm’s length principles. In some circumstances, specific rules in the tax law may have a similar effect as the application of the transfer pricing rules in section 247.

The 2019 federal budget provides a new rule that stipulates that adjustments under the transfer pricing rules are to apply before any other provision of Canada’s tax law. This ordering may have implications, for example, in the potential application of transfer pricing penalties. Current exceptions to the transfer pricing rules applicable to Canadian resident corporations that have amounts owing from, or guarantee amounts owed by, controlled foreign affiliates continue to apply. This measure will apply to tax years that begin on or after 19 March 2019.

The transfer pricing rules contain an expanded definition of “transaction” that includes an arrangement or event and is intended to broaden the range of circumstances when such rules apply. The budget makes this expanded definition of “transaction” relevant in the context of the additional three-year reassessment period applicable in respect of “transactions” involving a taxpayer and a non-arm’s length non-resident person. The measures will apply for tax years where the normal reassessment period ends on or after 19 March 2019.


Read a March 2019 report [PDF 136 KB] prepared by the KPMG member firm in Canada

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