In 1998, Section 247 of the Income Tax Act was published to align the Transfer Pricing rules with the existing Arm’s Length standard based on the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

On April 19, 2021, the Canadian Federal Budget was presented, announcing that the Government intends to launch a Consultation Paper that may generate possible changes to improve Canada’s existing Transfer Pricing rules. Although this Consultation Paper has not been published, this year’s Canadian Federal Budget, released on April 7, 2022, confirms the government intends to proceed with the initiative.

In addition, the Canadian Transfer Pricing regulations contained in section 247 of the Income Tax Act (ITA) are effective for tax periods beginning after 1997.

Arm’s Length Principle

According to Section 247 of the ITA, for tax purposes, the Arm’s Length Principle implies that the terms and conditions must be identical whether the parties are at Arm’s Length or not.

It includes all related parties, especially those where one is directly or indirectly legally controlled by the other or under common legal control, as well as those that do not address the Arm’s Length Principle. This concept of non-arm’s Length factual relationship is interpreted by the courts in this way:

  • Where there is a common mind directing the negotiation for both parties;
  • Where the parties act together without separate interests; and
  • Where one party has exercised de facto control over the other.

The legislation does not include specific guidelines for measuring the Arm’s Length Principle, although it does leave open the application of a valuation.

Related Parties

A corporation will be related to another person or corporation if:

  1. The person controls the corporation;
  2. The person is a member of a related group that controls the corporation; or
  3. The person is a related person to the person described in a) or b) above;

Additionally, it is established that two corporations are related if:

  1. Both corporations are controlled by the same person or group of persons;
  2. Each of the corporations is controlled by a person, and the person who controls one corporation is related to the person who controls the other corporation;
  • One of the corporations is controlled by a person, and that person is related to any member of a related group that controls the other corporation;
  1. One of the corporations is controlled by a person, and that person is related to each member of an unrelated group that controls the other corporation;
  2. 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
  3. 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.

Transfer Pricing Method

Canadian law does not specify any method that must be used regarding transactions of the parties. However, we can conclude from the administrative rules that these follow the content of Chapter 2 of the OECD Transfer Pricing Guidelines.

Transfer Pricing Documentation

Taxpayers are not required to file the Master File or Local Report for Canadian Transfer Pricing compliance purposes. However, the Canadian Transfer Pricing documentation must be prepared in reference to the Transfer Pricing documentation requirements stipulated in Section 247 of the ITA:

  1. Form T1134 (Information Statement relating to Controlled and Non-Controlled Foreign Subsidiaries): It must be filed by each foreign subsidiary (non-resident corporation or non-resident trust) of the taxpayer or partnership that is a controlled foreign subsidiary or a non-controlled foreign subsidiary.
  2. Form T106 (Information Statement of Non-Arm’s Length Transactions with Non-Residents): It is an annual information statement in which a reporting person (corporation, trust, or individual) or partnership reports its non-arm’s Length activities with non-residents. This Form must be filed if the total of reportable transactions for all non-residents exceeds $1,000,000 CDN.
  3. Country-by-Country Report: It is aimed at those groups of multinational enterprises with over 750 million euros in consolidated revenues in the immediately preceding fiscal year.

Transfer Pricing Sanctions

In addition to interest and penalties resulting from the Transfer Pricing adjustment, taxpayers may be subject to an additional 10% penalty for failing to make “reasonable efforts” to determine Transfer Pricing at Arm’s Length.

This sanction may be avoided or reduced when the taxpayer demonstrates reasonable efforts to determine said principle and has used these prices.

Every taxpayer, who does not comply required Transfer Pricing documentation criteria, fails to make reasonable efforts.

Source: Canada Revenue Agency (CRA)

Read More

 Author:       Wolfgang Hartl
 Author URI:
function WCD_rmrl(options) {
  const readLessText = options.readLessText;
  const readMoreText = options.readMoreText;

  const rmrlContent = document.querySelectorAll("[wcd_rmrl_percentage]");

  rmrlContent.forEach((element) => {
    // INITIAL SETUP (define height, overflow and attributes) = "hidden";
    element.setAttribute("wcd_rmrl_max", element.clientHeight + "px");

    var percentage = element.getAttribute("wcd_rmrl_percentage");
    var height = element.clientHeight;
    height = Math.round((height / 100) * percentage) + "px";

    element.setAttribute("wcd_rmrl_min", height); = height;

    trigger = element.nextSibling;
    trigger.addEventListener("click", function () {
      if ( == element.getAttribute("wcd_rmrl_min")) { = element.getAttribute("wcd_rmrl_max");
        this.childNodes.forEach((node) => {
          if (node.nodeValue !== null) {
            node.nodeValue = readLessText;
      } else { = element.getAttribute("wcd_rmrl_min");
        this.childNodes.forEach((node) => {
          if (node.nodeValue !== null) {
            node.nodeValue = readMoreText;
  const rmrl = new WCD_rmrl({
    readLessText : 'Read Less',
    readMoreText : 'Read More',


Contact us

In order to contact us, please fill out the following form:

Google reCaptcha: Invalid site key.