CRA likely will revise TPM-15 in response to BEPS, and is concerned that some counties have not committed to treat CbCR information as confidential

Some of the points made by Paul Stesco, a Manager in the International Advisory Services Section, International Tax Division:

• BEPS Actions 8 to 10 (re transfer pricing) were examined and determined to not require any changes to the s. 247 rules, and the Action 8 DEMPE (“Development, Enhancement, Maintenance, Protection, and Exploitation”) guidelines respecting of intangible assets are generally reflective of the things CRA already was looking at. However, CRA considers that there are changes in direction respecting: the risk-free rates of return, e.g., to the bare IP owner (which is something the OECD is still working on); and the treatment of low-value-added services.
• Respecting Action 13 (re documentation), Canada expects to have between 100 to 120 Canadian multinational parents reporting under the Country-by-Country Reporting (CbCR) rules.
• The U.S. has not yet “signed on” to the automatic CbCR exchange, and CRA and Finance are coming up with a policy as to how to deal with that.
• Most of the CbCR reporting received in Canada from other countries will be centered in the Head Office and used to assist in tier-1 risk assessment.
• CRA considers that the CbCR information received is confidential information that is protected under ITA s. 241, and thus to be used only in the same way as information exchanged under competent authority. However, “there are jurisdictions suggesting that they would make this information public,” and CRA is awaiting their final decision on this point.
• CRA internally reorganized, so that CRA International and Avoidance specialists are now embedded within large case-file audits and report directly to the large case manager. However, all of the economists, who have a significant effect on transfer pricing audits, are in Ottawa.
• BEPS is causing CRA to review TPM-15 on intra-group services given the new guidelines on low value-added services.
• CRA has increased its scrutiny of business “restructurings” (including changes to contracts) in order to get a complete picture of the situation before and after, and may do a “fulsome” audit regarding the change.
• The penalty recommendations by the Transfer Pricing Review Committee have declined from 51% (for referrals received up to 2012) to 44% thereafter – there is more and better contemporaneous documentation.
• Ss. 247(2)(b) and(d) "recharacterizations aren’t done on a regular basis. They are the outliers."

Neal Armstrong. November 2016 Toronto Centre Canada Revenue Agency & Tax Professionals Seminar on International Tax Issues.