CRA should adhere to the OECD transfer-pricing guidelines on “reasonable efforts”

If a taxpayer satisfies the contemporaneous documentation requirements of s. 247(4), s. 247(3) provides a safe harbor from its penalty provisions if the taxpayer made “reasonable efforts” to determine an “arm’s length transfer price.”

The following statement in TPM-09 is generally consistent with the 1995 OECD Guidelines which inspired this safe harbor (and which referred to "prudent business management principles that would govern the process of evaluating a business of a similar level of complexity and importance:"

What is reasonable is based on what a reasonable business person in the taxpayer's circumstances would do, having regard to the complexity and importance of the transfer pricing issues that arise in the taxpayer's case. …

However, the authors note that “regardless, we have seen the CRA assert penalties in circumstances where it ought to be uncontroversial that reasonable efforts were made.”

Neal Armstrong. Summaries of Michael Colborne, Michael McLaren, Mark Barbour, "Subsection 247(3): What are "Reasonable Efforts"?", Canadian Tax Journal, (2016) 64:1, 229-43 under s. 247(3) and s. 247(4).