The Canada Revenue Agency (CRA) has published Transfer Pricing Memorandum (TPM)-15 regarding intra-group services and section 247 of the Income Tax Act on 13th February 2015. TPM-15 describes the CRA’s audit policy on some audit and tax issues usually faced during an international audit of intra-group services. The guidance entitled “International Transfer Pricing” on Information Circular (IC) 87-2R provided by CRA has been expanded by TPM-15. As part of its Base Erosion and Profit Shifting (BEPS) project, the Organization for Economic Co-operation and Development (OECD) has released draft revisions to its guidance on intra-group services for comment on 3rd November 2014. The common subject of TPM-15 is that the CRA will continue to audit intra-group services with emphasizing a benefit test, the arm’s length service charges calculation, particularly the configuration of the cost base where a cost-based method is used. A benefit test is that intra-group service give a benefit to the recipient for which a charge is necessary in an arm’s length circumstances. Besides this the guidance in TPM-15 on non-deductibility of specific types of costs with reference to other non-transfer pricing provisions of the Income tax Act creates double taxation alert. Though TPM-15 refers the current OECD guidance, it confirms the CRA’s continued endorsement of the guidance set out in the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations and it ignores the proposal of OECD for the purpose of more simplified approach.
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