Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: A. Do the guidelines provided in the 2017 OECD Transfer Pricing Guidelines apply retroactively? B. Can taxpayers expect additional guidance on transfer pricing issues identified in the course of the BEPS Project?
Position: A. The guidelines are not being “applied retroactively”. They generally already applied prior to the release of the 2017 OECD Transfer Pricing Guidelines. B. Yes.
Reasons: A. The CRA does not consider that the guidelines are being applied retroactively because content on delineation, risk, intangibles etc. reflects the interpretation and practice of OECD countries, including Canada, before and after the release of the 2017 OECD Transfer Pricing Guidelines. B. The CRA will be updating its policy documents in due course to address some of the transfer pricing issues identified in the course of the BEPS Project.
2018 CTF Annual Conference
Question 4: OECD Transfer Pricing Guidelines
Despite the significant new content contained in the 2017 Organization for Economic Co-operation and Development (“OECD”) Transfer Pricing Guidelines, the position communicated in the 2016 federal budget was that the revisions to the transfer pricing guidelines are being applied by the CRA as they are consistent with current practices. The 2018 budget reiterated that “Canada has adopted the revised OECD Transfer Pricing Guidelines and has played an important role in developing additional guidance on issues identified in the course of the BEPS [Base Erosion and Profit Shifting] Project. These issues include the attribution of profits to permanent establishments, the use of the profit split method, and the treatment of hard-to-value intangibles. Additional guidance is due to be published over the course of 2018.” The additional guidance was, indeed, provided by the OECD in the form of final reports on the use of the profit split method and the treatment of hard-to-value intangibles, and, more recently, in the form of a (non-consensus) discussion draft on financial transactions.
In light of the new developments, could the CRA comment on:
A. Whether the CRA is still of the view that the 2017 OECD Transfer Pricing Guidelines could be applied retroactively on the basis that they are just clarifying the previous versions of the transfer pricing guidelines?
B. Whether and when we can expect to see additional transfer pricing guidance (for instance, new versions of the IC 87-2R, TPM-14, etc.)?
CRA Response (A)
The 2017 updates to the Transfer Pricing Guidelines (“TPG”) generally clarified the interpretation and application of the Arm’s Length Principle, largely based on OECD member countries’ experience in applying the previous iterations of the TPG, and do not generally represent a change in the analysis of transfer pricing issues. The CRA does not consider that the TPG are being applied retroactively because content on delineation, risk, intangibles etc. reflects the interpretation and practice of OECD countries, including Canada, before and after the release of the 2017 OECD Transfer Pricing Guidelines.
The CRA has the same view concerning any guidance issued since the 2017 update to the TPG, namely guidance on profit splits, hard-to-value intangibles and attribution of profits to permanent establishments. The discussion draft on financial transactions will not be commented on at this time as it is still in draft form and we will assess its applicability once finalized.
CRA Response (B)
Yes, the CRA will be updating its transfer pricing policy documents in due course. The financial transactions paper represents the final guidance required under the scoping of the Actions 8-10 BEPS Project and once finalized the CRA will develop transfer pricing policy where needed to reflect the project as a whole and its applicability to Canadian transfer pricing practice.
Response prepared by:
Blair Vokey and Alex Ho
CRA, International Tax Division
International and Large Business Directorate
November 27, 2018
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