Michael Colborne, Michael McLaren, Mark Barbour, "Subsection 247(3): What are "Reasonable Efforts"?", Canadian Tax Journal, (2016) 64:1, 229-43

Standalone report not required/may be no assumptions and policies (p. 232)

[T]he statute does not require that the taxpayer condense all of the information in a single standalone document or report. Instead, the rule only requires the taxpayer to make or obtain, by the relevant time, records or documents that contain the prescribed information….

[B]y employing the phrase "if any," the rule expressly contemplates situations where no assumptions, strategies, and policies exist as well as circumstances in which assumptions, strategies, and policies have no effect on the transfer price….

Dictionary meaning of “reasonable efforts” (p. 236)

On the basis of these definitions, we believe that the ordinary meaning of "reasonable efforts" is "sensible, moderate, yet determined attempts."…

Context of s. 247(3) (pp. 236-7)

As a contextual matter, subsection 247(3) was enacted as part of the 1995-1997 technical bill that added section 247 to the Act—which, as we have noted, was intended to harmonize Canada's, transfer-pricing rules with the arm's-length standard described in the 1995 OECD guidelines….

Subsection 247(3) and all related rules in section 246, including subsection 247(2), should also be viewed in the context of a taxpayer's liability under section 151 to "estimate the amount of tax payable" when the taxpayer files its tax return….[T]his statutory context suggests that in interpreting "reasonable efforts," one should emphasize the "sensible" and "moderate" aspects of the ordinary meaning of "reasonable."

1997 budget and 1995 OECD guidelines referenced therein (pp. 238-9)

The [1997] budget plan indicates that the 1995 OECD guidelines provided the inspiration for the changes to the transfer-pricing rules, including the penalty provisions….

[C]hapter 5 [of the OECD Guidelines] provides that

[t]axpayers should make reasonable efforts at the time transfer pricing is established to determine whether the transfer pricing is appropriate for tax purposes in accordance with the arm's length principle. . . . [The] extensiveness of this process should be determined in accordance with the same prudent business management principles that would govern the process of evaluating a business of a similar level of complexity and importance. [fn 31: … 1995 OECD guidelines, at paragraph 5.28 (emphasis added). …

the need for the documents should be balanced by the costs and administrative burdens, particularly where this process suggests the creation of documents that would not otherwise be prepared or referred to in the absence of tax considerations.

CRA position on reasonable efforts (p. 241)

[T]PM-09 also states:

A reasonable effort means the degree of effort that an independent and competent person engaged in the same line of business or endeavour would exercise under similar circumstances. 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. …

[R]egardless, we have seen the CRA assert penalties in circumstances where it ought to be uncontroversial that reasonable efforts were made.

Conclusion (p. 243)

Application of the textual, contextual, and purposive approach to statutory interpretation mandated by the Supreme Court of Canada supports the conclusion that Parliament intended the phrase "reasonable efforts" in subsection 247(3) to require a determination of whether a taxpayer attempted to establish an arm-length price as a prudent business person would do in the same circumstances….

Words and Phrases
reasonable efforts