The Canada Revenue Agency (CRA) has to follow the OECD Guidelines when performing transfer pricing audits.  Two new transfer pricing memoranda (TPM-13 & TPM-14) have been issued. TPM-13 deals with referrals to the Transfer Pricing Review Committee and clarifies that the CRA auditor will submit the taxpayer’s representations, along with the penalty referral report, to the TPRC. In other words, TPM-14 concerns the 2010 Update of the OECD Transfer Pricing Guidelines and according to TPM-14, the CRA is capturing all of the changes to the OECD Guidelines that involve changes to Chapters I, II, III and IX. These memoranda were published at the end of October 2012.

Transfer pricing penalties on an adjustment to income or capital that crosses the lesser of $5 million or 10% of the taxpayer’s gross revenue may be determinate by the CRA. A transfer pricing penalty of 10% on the adjustment to income or capital will be assessed if the TPRC finds that the taxpayer did not make suitable efforts to determine and use arm’s length transfer prices for a given transaction.