Rather, Canadian transfer pricing documentation is prepared in reference to the transfer pricing documentation requirements stipulated under subsection 247(4) of ITA. Taxpayers are not required to assemble an OECD Master File or a Local File for Canadian transfer pricing compliance purposes. Similarly, Country by Country Reporting (CbCR) Forms are required to be filed in certain cases (see 'Country-by-Country Reporting'). In addition to the requirement to adhere to transfer pricing laws, Taxpayers are also required to complete the T106 Information Return when filing a tax return if they have transactions greater than CAD 1,000,000 with non-resident related parties. Refer TPM 03R Downward Transfer Pricing Adjustments and IC71-17R6 Competent Authority Assistance under Canada’s Tax Conventions. Downward adjustments can be considered only in specific circumstances.VDP applications relating to transfer pricing are automatically referred to a specialty group called the Transfer Pricing Review Committee. If a VDP application is accepted by the CRA, taxes owing plus interest in part or full are payable, however penalties may be waived. The Voluntary Disclosures Program (VDP) provides taxpayers with an opportunity to correct an incorrectly filed tax return or file an outstanding tax return that should have been filed.Taxpayers are advised to monitor such cases and provisionally file submissions to the Component Authorities where appropriate (see 'Dispute Resolution', below). Certain of Canada’s tax treaties may limit treaty relief availability to a period of less than seven years. An exception to this period applies in the case of misrepresentations, fraud, or if a waiver is filed. However, in transfer pricing cases, the period is extended by an additional three years (i.e., to six or seven years). The statute of limitations is generally limited by subsection 152(4) of the ITA to four years (three years in the case of individuals, trusts, and Canadian-controlled private corporations) beginning after the day of mailing a notice of an original assessment or notification that no tax is payable.Generally, audits are not conducted every year- though high-risk Taxpayers (see 'Risk factors', below) are advised to prepare for yearly audits as a contingency. The CRA exercises discretion with respect to selecting Taxpayers for audit. The onus is on the taxpayer to ensure that transfer pricing laws are adhered to. Domestic transactions are not subject to the rules of Section 247 of the ITA and other tax provisions exist that address remuneration for transactions between non-arm’s length persons and expense reasonability. Taxpayers are advised to refer to jurisprudence. For domestic transactions (ie, intra-Canada), transfer pricing approaches consistent with the methods described by the OECD Guidelines are sometimes followed however, limited guidance exists.

The CRA’s position is that method selection must consider the degree of comparability available under each of the methods and the availability and reliability of the data. The traditional transaction methods (ie, CUP, resale price, cost plus) are preferred over transactional profit methods. The CRA’s views have been published in TPM 14 – 2010 Update of the OECD Transfer Pricing Guidelines which, consistent with the cancelled IC 87 2-R, suggests that the CRA believes that a natural hierarchy exists in respect of the transfer pricing methods.

IC 87 2-R outlined the CRA’s views regarding the selection and application of transfer pricing methods, however it was cancelled in 2020 due to a lack of updates following revisions to the OECD Guidelines.

Other methods can also be used if appropriate.

In an international context (ie, cross-border), the CRA accepts the transfer pricing methods described in the OECD Guidelines, namely the comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split methods.

Irs transfer pricing