Sifto – Tax Court of Canada finds that a taxpayer-accepted agreement with the U.S. competent authority re a VDP-adjusted transfer price binds CRA even if it had not yet audited the taxpayer

CRA accepted a voluntary disclosure by Sifto Canada that it had undercharged on its sales of rock salt to a U.S. affiliate, and reassessed accordingly. Sifto Canada and its U.S. parent then applied to the Canadian and U.S. competent authorities for there to be a correlative downward adjustment in the income of the consolidated U.S. group based on the higher transfer price. The two competent authorities agreed to this, and CRA then entered into a letter agreement with Sifto Canada where it agreed with the adjustment.

Only then did CRA audit Sifto Canada, which resulted in it reassessing Sifto Canada on the basis that the transfer prices should have been even higher. CRA argued that the competent-authority agreement did not represent an agreement on the transfer price and that, in any event, it would be improper for it to implement an agreement which it did not view as according with the ITA.

Owen J rejected these arguments, and found that the above multi-party arrangements had resulted in binding agreements as to the transfer prices, and that such an agreement between the competent authorities in accordance with the Treaty had paramountcy over the ITA provisions.

Neal Armstrong. Summaries of Sifto Canada Corp. v. The Queen, 2017 TCC 37 under Treaties, Art. 9, s. 247(2) and s. 115.1(1).