On 6 June 2023, the Canadian Department of Finance issued a consultation paper on reforming and enhancing Transfer Pricing Rules. Budget 2021 announced the government’s intention to consult on Canada’s transfer pricing rules with a view of protecting the integrity of the tax system while preserving Canada’s attractiveness as a destination for new investment and business activity.

Transfer pricing legislation requires that, for tax purposes, transactions involving entities of a multinational group must reflect the arm’s length principle. Reforming and Modernizing Canada’s Transfer Pricing Rules to uphold the integrity of the tax system, ensure tax fairness, and preserve Canada’s attractiveness as a destination for investment and business activity, as committed to in Budget 2021. The Department of Finance is seeking input from stakeholders on the related consultation paper, which may be sent to prixdetransfert-transferpricing@fin.gc.ca by 28 July 2023.

The government is carrying out this consultation in order to gather stakeholder input on a range of questions and proposals related to Canada’s transfer pricing legislation. This legislation incorporates the arm’s length principle into Canadian tax law. The main proposal concerns possible amendments to the transfer pricing adjustment rule in section 247 of the Income Tax Act.

These changes would provide greater clarity on the application of the arm’s length principle in Canada in line with international consensus. This consultation also provides the opportunity to consult on administrative matters connected to transfer pricing, including documentation and penalty provisions and the possibility of adopting more modern or simplified approaches in specific situations.