Canada’s 2019 federal budget introduces transfer pricing measures

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Canada’s 2019 federal budget introduces transfer pricing measures

Ottawa - Large

Deloitte’s Phil Fortier and Tony Anderson summarise the transfer pricing (TP) measures in Canada’s 2019 federal budget.

Canada’s 2019 federal budget, released March 19, proposes two new measures concerning the relationship between the transfer pricing (TP) rules in the Income Tax Act (ITA) and other provisions of the ITA. The budget also provides commentary on the ongoing BEPS project.

A summary of the TP-related measures contained in the budget is provided below.

Transfer pricing measures

The two budget measures related to TP include the order of application of the TP rules and the definition of transaction for an extended reassessment period.

Order of application of the transfer pricing rules

Canada’s government proposes amending the ITA to clarify that the TP rules in Part XVI.1 (s. 247) should have priority of application over other provisions in the ITA. The budget notes that this change may have various implications and provides an example on the calculation of TP penalties imposed under Part XVI.1 of the ITA. 

The budget notes that the current exceptions to the application of TP rules that pertain to Canadian resident corporations that have amounts owing from controlled foreign affiliates, or guarantees of amounts owed by controlled foreign affiliates, will continue to apply.

The order of application measure will apply to taxation periods that begin on or after March 19 2019.

Definition of transaction for extended reassessment period

Canada’s government has also proposed amending the ITA to ensure that the term “transaction” has the same meaning in both the TP rules and the applicable reassessment rules.

As background, an extended three-year reassessment period applies to reassessments made as a consequence of a transaction involving a taxpayer and a non-resident with whom the taxpayer does not deal at arm’s-length.

The budget notes that this reassessment extension is intended to apply in the TP context, but that the expanded definition of “transaction” used in the TP rules does not apply for purposes of the extended reassessment period. As such, the change in definition of transaction for reassessment purposes is intended to better align the TP rules and the extended three-year reassessment period.

The change to the definition of “transaction” for purposes of the extended reassessment period will apply to taxation periods of taxpayers for which the normal reassessment period ends on or after March 19 2019.

Update on the BEPS project

The budget reiterates that the Canadian government continues to cooperate and actively participate in the OECD project known as the BEPS initiative.

Multilateral instrument

The budget notes that the Canadian government is taking the necessary steps to enact the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) into Canadian law, and to ratify the MLI as needed to bring the tool into force.

Country-by-country reporting

In addition, the budget notes that Canada is currently participating in an OECD review of the information being collected in the country-by-country reports to ensure that they provide tax administrations with information that facilitates accurate assessment for TP and other BEPS risks. This review is scheduled to be completed in 2020

Phil Fortier - Portrait

Phil Fortier

 

anderson.jpg

Tony Anderson





This article was written by Phil Fortier and Tony Anderson of Deloitte LLP in Canada. 

Phil Fortier, Partner
Deloitte LLP
Email: philfortier@deloitte.ca

Tony Anderson, Partner
Deloitte LLP
Email: toanderson@deloitte.ca



© 2019. For information, contact Deloitte Touche Tohmatsu Limited.

This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms or their related entities (collectively, the “Deloitte network”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.

more across site & shared bottom lb ros

More from across our site

It should be easy for advisers to be transparent about costs, Brown Rudnick partner Matthew Sharp said in response to exclusive ITR in-house data
The sprawling legislation phases out Joe Biden-era green tax incentives for businesses; in other news, the UK will reportedly maintain its DST despite US pressure
New French legislation should create a more consistent legal environment for taxing gains from management packages, say Bruno Knadjian and Sylvain Piémont of Herbert Smith Freehills Kramer
The South Africa vs SC ruling may embolden the tax authority to take a more aggressive approach to TP assessments, an adviser tells ITR
Indirect tax professionals now rate compliance as a bigger obstacle than technology and automation; in other news, Italy approved a VAT cut on art sales
AI-powered tax agents are likely to be the next big development in tax technology, says Russell Gammon of Tax Systems
FTI Consulting’s EMEA head of employment tax and reward tells ITR about celebrating diversity in the profession, his love of musicals, and what makes tax cool
Canadian Prime Minister Mark Carney and US President Donald Trump have agreed that the countries will look to conclude a deal by July 21, 2025
The firm’s lack of transparency regarding its tax leaks scandal should see the ban extended beyond June 30, senators Deborah O’Neill and Barbara Pocock tell ITR
Despite posing significant administrative hurdles, digital services taxes remain ‘the best way forward’ for emerging economies, says Neil Kelley, COO of Ascoria
Gift this article