Tax memo: TCDR alert: CRA endorses update of the OECD transfer pricing guidelines

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Memo No. 2012-54

The Canada Revenue Agency (CRA) recently published TPM-14 (one in a series of Transfer Pricing Memoranda) on the 2010 update of the OECD Transfer Pricing Guidelines (the “Guidelines”). TPM-14 explains the CRA’s position on the OECD’s revisions to Chapters I to III of the Guidelines, as well as its guidance on business restructurings (included in a new Chapter IX of the Guidelines), both issued by the OECD on July 22, 2010.

For more information on the OECD’s revised guidance please see two PKNs issued July 22, 2010: “OECD publishes revised guidelines on transfer pricing” and “OECD publishes final guidance on the transfer pricing aspects of business restructurings.”

TPM-14 confirms that the CRA endorses, without reservation, the application of the revised Guidelines for the administration of the Income Tax Act (the “Act”) regarding transfer pricing matters. TPM-14 also clarifies that the CRA will apply the 2010 version of the Guidelines to all years open for audit, including transactions that predate their publication, and provides that the new version should apply to all treaties (including those that predate the revisions).

In summary, the 2010 revisions to the Guidelines clarify and provide expanded guidance in respect of the application of the arm’s length principle. TPM-14 endorses all revisions to the Guidelines and highlights the following as significant changes:

  • selection of the transfer pricing method;
  • application of the transactional profit methods;
  • performing a comparability analysis; and
  • transfer pricing aspects of business restructurings.

Read this Tax memo for more details.