An application of CRA’s transfer-pricing penalty policies should be evaluated rigorously

Comments on the transfer-pricing penalty rules include:

• It appears unlikely that merely satisfying the documentary requirements in s. 247(4)(a) will provide a safe harbour from the imposition of penalties under s. 247(3).
• “Regardless whether profit allocations can be used under subsection 247(2) in circumstances where they do not permit the determination of specific terms and conditions in respect of a transaction, it is clear that they can be used as a defence against the application of transfer-pricing penalties.”
• There is some judicial support for the proposition that where CRA has made s. 247(4) requests for documentation and has expressed no concern with it, this should be a defence against a penalty being imposed in the future on the basis that the same type of documentation is inadequate.
• TPM-09 to some extent goes beyond what the corresponding OECD Guidelines suggest would be appropriate.
• Where a taxpayer has made reasonable efforts to determine and use an arm’s length price or allocation in respect of the actual transactions it engaged in, there should be no s. 247(3) penalty if its transactions are deemed to be something different under s. 247(2)(d) recharacterization.

Summaries of comments of Richard Tremblay contained in Brian Mustard, Sam Maruca, Charles Thériault, and Richard Tremblay, "Transfer Pricing: What Are 'Reasonable Efforts,' and When should Penalties Apply?" Canadian Tax Foundation, 2015 Conference Report, 32:1-33 under s. 247(3) and s. 247(4)(a).