- Updated
- July 2025
- Sections
- 15
- Questions
- 36
Key Facts
Core Framework
Section 247 of the Income Tax Act, RSC 1985, c 1 (5th Supp) (ITA)
Supreme Court of Canada decision: Canada v. GlaxoSmithKline Inc., 2012 SCC 52
Canada as a member of the OECD endorses the OECD Transfer Pricing Guidelines (TPG). The TPG provide guidance and have been referred to in court decisions. but are not law in Canada.
TPM-14, 2010 Update of the OECD Transfer Pricing Guidelines
The Canada Revenue Agency follows the guidance provided in Chapter III of the TPG. Canada’s published domestic administrative guidance provides further information.
In general, domestic comparables would be assumed to be more reliable in cases where the Canadian taxpayer is the tested party. However, foreign comparables are acceptable provided that they meet the same standards of comparability.
TPM-04, Third Party Information
Canada’s legislation allows the Minister to use all information in her possession for the purposes of the administration and enforcement of the ITA. However, from an administrative perspective, the use of secret comparables as the basis for an assessment is an approach of last resort.
TPM-16, Role of Multiple Year Data in Transfer Pricing Analyses
Canada’s legislation does not mention ranges or statistical tools. Canada’s published domestic administrative guidance allows the use of arm’s length ranges but instructs taxpayers not to use interquartile ranges or multiple-year averages to determine arm’s length prices. The averaging of historical outcomes of comparable transactions over multiple years may provide information relevant in an advance pricing arrangement (APA) context. Nonetheless, even in this context transfer prices used will be verified on a year-by-year basis.
Documentation
T2 Schedule 19, 22, 25, 29, 44, 97; T106; T1134; T1135; T1141; T1142
Canada requires specific filings concerning transfer pricing and offshore holdings. See specific references in the next column.
T2 Schedule 19, 22, 25, 29, 44, 97; T106; T1134; T1135; T1141; T1142
Canada requires specific filings concerning transfer pricing and offshore holdings. See specific references in the next column.
T2 Schedule 19, 22, 25, 29, 44, 97; T106; T1134; T1135; T1141; T1142
Canada requires specific filings concerning transfer pricing and offshore holdings. See specific references in the next column.
See response to question 30.
TP Methods
- Not specified
Selection: Hierarchy of methods
Dispute Resolution
Canada’s MAP Profile
Taxpayers may appeal any reassessment, including those resulting from transfer pricing adjustments, to the Appeals Division of the CRA for an independent impartial review. Thereafter, recourse is also available through the Canadian court system. Where applicable, taxpayers may also file for relief from double taxation under the mutual agreement procedure provisions of Canada’s tax treaties. Canada’s practice is generally not to engage in both the mutual agreement procedure under a tax treaty and domestic dispute resolution remedies at the same time on the same issues. Taxpayers will be asked to select one process and suspend or terminate the other. Arbitration may be available for unresolved transfer pricing issues under the mutual agreement procedure of some tax treaties.
Canada’s MAP Profile
Taxpayers may appeal any reassessment, including those resulting from transfer pricing adjustments, to the Appeals Division of the CRA for an independent impartial review. Thereafter, recourse is also available through the Canadian court system. Where applicable, taxpayers may also file for relief from double taxation under the mutual agreement procedure provisions of Canada’s tax treaties. Canada’s practice is generally not to engage in both the mutual agreement procedure under a tax treaty and domestic dispute resolution remedies at the same time on the same issues. Taxpayers will be asked to select one process and suspend or terminate the other. Arbitration may be available for unresolved transfer pricing issues under the mutual agreement procedure of some tax treaties.
Simplifications
Special Topics
TPM-15 Intra-group services and section 247 of the Income Tax Act
Yes. If so, does your domestic transfer pricing framework follow (or largely follow) the guidance in Chapter VII of the TPG? Yes
Canada does not have any specific legislation or regulations related to the transfer pricing of financial transactions.
Full OECD Questionnaire
Legal ReferenceSection 247 of the Income Tax Act, RSC 1985, c 1 (5th Supp) (ITA)
Legal ReferenceSupreme Court of Canada decision: Canada v. GlaxoSmithKline Inc., 2012 SCC 52
Canada as a member of the OECD endorses the OECD Transfer Pricing Guidelines (TPG). The TPG provide guidance and have been referred to in court decisions. but are not law in Canada.
Legal ReferenceParagraph 251(1)(a) of the ITA; Sub-section 251(2) of the ITA; Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length provides further information
The concept of “arm’s length” is not defined in the ITA, although several deeming rules are relevant to its application. Subsection 251(2) of the ITA defines related persons. Paragraph 251(1)(a) deems related persons not to deal with each other at arm’s length. This is the case regardless of how they actually conduct their mutual business transactions. According to paragraph 251(2)(a) of the ITA, individuals connected by blood relationship, marriage, common-law partnership or adoption are related persons. Under paragraph 251(2)(b) of the ITA, a corporation will be related to another person (including another corporation) where: (a) that person controls the corporation; (b) that person is a member of a related group that controls the corporation; or (c) that person is a person who is related to a person described in (a) or (b) above. In addition, paragraph 251(2)(c) provides that two corporations will be related if: (i) the two corporations are controlled by the same person or group of persons; (ii) each of the corporations is controlled by one person and the person who controls one corporation is related to the person who controls the other corporation; (iii) one of the corporations is controlled by one person and that person is related to any member of a related group that controls the other corporation; (iv) one of the corporations is controlled by one person and that person is related to each member of an unrelated group that controls the other corporation; (v) any member of a related group that controls one of the corporations is related to each member of an unrelated group that controls the other corporation; or (vi) each member of an unrelated group that controls one of the corporations is related to at least one member of an unrelated group that controls the other corporation
Legal ReferenceTPM-14, 2010 Update of the OECD Transfer Pricing Guidelines
Canada’s legislation does not specify any method to be used in respect of related party transactions. However, Canada’s published domestic administrative guidance reflects our endorsement of Chapter II of the TPG.
- CUP (not provided)
- Resale Price (not provided)
- Cost Plus (not provided)
- TNMM (not provided)
- Profit Split (not provided)
- Other (not provided)
Legal ReferenceTPM-14, 2010 Update of the OECD Transfer Pricing Guidelines
Canada’s legislation does not specify any method to be used in respect of related party transactions. However, Canada’s published domestic administrative guidance reflects our endorsement of Chapter II of the TPG.
- Hierarchy of methods (selected)
- Most appropriate method (selected)
Canada’s legislation, regulations, and administrative guidance do not provide specific guidance on commodity transactions.
Legal ReferenceTPM-14, 2010 Update of the OECD Transfer Pricing Guidelines
The Canada Revenue Agency follows the guidance provided in Chapter III of the TPG. Canada’s published domestic administrative guidance provides further information.
In general, domestic comparables would be assumed to be more reliable in cases where the Canadian taxpayer is the tested party. However, foreign comparables are acceptable provided that they meet the same standards of comparability.
Legal ReferenceTPM-04, Third Party Information
Canada’s legislation allows the Minister to use all information in her possession for the purposes of the administration and enforcement of the ITA. However, from an administrative perspective, the use of secret comparables as the basis for an assessment is an approach of last resort.
Legal ReferenceTPM-16, Role of Multiple Year Data in Transfer Pricing Analyses
Canada’s legislation does not mention ranges or statistical tools. Canada’s published domestic administrative guidance allows the use of arm’s length ranges but instructs taxpayers not to use interquartile ranges or multiple-year averages to determine arm’s length prices. The averaging of historical outcomes of comparable transactions over multiple years may provide information relevant in an advance pricing arrangement (APA) context. Nonetheless, even in this context transfer prices used will be verified on a year-by-year basis.
There is no such specific requirement in Canadian legislation or regulations. Canada’s published domestic administrative guidance indicates that comparability adjustments must be made where appropriate provided that they can be done on a reliable basis.
There are a number of provisions in Canada’s income tax legislation and regulations that address the domestic tax treatment of intangibles and assets in general.
Legal ReferenceTPM-15 Intra-group services and section 247 of the Income Tax Act
Yes. If so, does your domestic transfer pricing framework follow (or largely follow) the guidance in Chapter VII of the TPG? Yes
Canada does not have any specific legislation or regulations related to the transfer pricing of financial transactions.
Canada operates a “thin capitalisation” regime that caps the proportion of related party cross-border interest that may be deducted by reference to a debt-equity ratio of 1.5:1. The government has introduced, starting in 2023, a rule limiting deductions of interest consistent with the recommendations of the BEPS Action 4 Report. It has also introduced anti-hybrid rules consistent with the BEPS Action 2 recommendations. More generally, there are a number of provisions in Canada’s income tax legislation and regulations that address the domestic tax treatment of financial transactions.
Legal ReferenceSection 247 of the ITA
The determination of whether a CCA is arm’s length falls within our general transfer pricing rules as set out in Section 247 of the ITA. Canada’s legislation does not specify any method to be used in respect of cost contribution arrangements. However, Canada’s published domestic administrative guidance reflects our endorsement of the TPG.
Legal ReferenceT2 Schedule 19, 22, 25, 29, 44, 97; T106; T1134; T1135; T1141; T1142
Canada requires specific filings concerning transfer pricing and offshore holdings. See specific references in the next column.
- Master file consistent with Annex I to Chapter V of the TPG (not selected)
- Local file consistent with Annex II to Chapter V of the TPG (not selected)
- Country-by-country report consistent with Annex III to Chapter V of the TPG (selected)
- Specific transfer pricing returns (separate or annexed to the tax return) (selected)
- Other (specify) (selected)
Legal ReferenceSub-sections 247(3) and 247(4) of the ITA; TPM-05R - Requests for Contemporaneous Documentation; TPM-09 - Reasonable efforts under section 247 of the Income Tax Act
Taxpayers are not obliged to file contemporaneous documentation with their tax return. However, failure to make reasonable efforts to determine and use arm’s length prices exposes the taxpayer to transfer pricing penalties in the event that the tax administration (Canada Revenue Agency) makes transfer pricing adjustments that exceed the thresholds specified in sub-section 247(3) of the ITA. A taxpayer is deemed not to have made reasonable efforts to determine and use arm’s length transfer prices or allocations unless the taxpayer has prepared or obtained records or documents which provide a description that is complete and accurate in all material respects of the items listed in subparagraphs 247(4)(a)(i) through (vi). The documentation must be prepared or obtained on or before the taxpayer’s documentation-due date for the tax year or fiscal period in which the transaction is entered into. The taxpayer must provide the records or documents specified in subsection 247(4) to the CRA within three months of service of a written request to do so. It may still be the case that a taxpayer has provided transfer pricing documentation within the specified timelines and still be subject to a transfer pricing penalty. This occurs where the tax administration finds that the documentation provided is not sufficient to demonstrate that the taxpayer made reasonable efforts to determine and use arm’s length transfer prices.
See response to question 30.
Legal ReferenceCanada’s MAP Profile
Taxpayers may appeal any reassessment, including those resulting from transfer pricing adjustments, to the Appeals Division of the CRA for an independent impartial review. Thereafter, recourse is also available through the Canadian court system. Where applicable, taxpayers may also file for relief from double taxation under the mutual agreement procedure provisions of Canada’s tax treaties. Canada’s practice is generally not to engage in both the mutual agreement procedure under a tax treaty and domestic dispute resolution remedies at the same time on the same issues. Taxpayers will be asked to select one process and suspend or terminate the other. Arbitration may be available for unresolved transfer pricing issues under the mutual agreement procedure of some tax treaties.
- Rulings (selected)
- Enhanced engagement or cooperative compliance programmes (not selected)
- Advance Pricing Agreements (APA) (selected)
- Unilateral APAs (selected)
- Bilateral APAs (selected)
- Multilateral APAs (selected)
- International Compliance Assurance Programme (ICAP) (selected)
- Mutual Agreement Procedures (selected)
- Other (selected)
Legal ReferenceSubsection 247(10) of the ITA; TPM-03R Downward Transfer Pricing Adjustments
Yes, subsection 247(10) allows downward adjustments if in the opinion of the Minister, the circumstances are such that it would be appropriate that the adjustment be made.
Canada requires taxpayers to price their cross-border related-party transactions in accordance with the arm’s length principle. A year-end adjustment is one way that this requirement may be met.
Legal ReferenceSub-Section 247(12)-(13) of the ITA; TPM-02R Secondary transfer pricing adjustments, repatriation and Part XIII tax assessments
Sub-Section 247(12) of the ITA provides for a secondary adjustment on all transfer pricing adjustments. Broadly, the amount adjusted is deemed by this provision to be a dividend and withholding tax is applicable according to the relevant treaty rates. Sub-Section 247(13) provides that relief from secondary adjustments is available in certain circumstances.
Canada has three tax treaties containing an Article 7 broadly in line with the OECD Model Tax Convention 2010 and 91 treaties containing an Article 7 as it read before 2010.
- Article 7 as it read before 2010 (selected)
- Article 7 as it reads after 2010 (selected)
There is no implementation of the AOA where the applicable tax treaty does not contain the new version of Article 7 (OECD MTC 2010 and later).
Legal ReferenceTPM-13 – Referrals to the Transfer Pricing Review Committee; Explanatory Notes Relating to the Income Tax Act and Other Legislation- Canada.ca
The Transfer Pricing Review Committee of the Canada Revenue Agency provides administrative oversight of certain transfer pricing assessments. Details can be found in TPM-13 – Referrals to the Transfer Pricing Review Committee. Subsection 247(2.1) clarifies the interaction of subsection 247(2) and the other provisions of the ITA. The subsection provides an ordering for the application of the transfer pricing adjustments in the context of the provisions of the Act: the transfer pricing rules apply in priority to the application of the other provisions of the ITA.
Legal ReferencePart 4 - Fair and Responsible Government | Budget 2021
Canada has previously announced its intention to update its transfer pricing rules.
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