Introduction

Canadian income tax law has included transfer pricing rules of one form or another since the early twentieth century. Despite this lengthy statutory history, however, the number of transfer pricing cases in Canada is quite small, comprising only twelve reported judgments over the past sixty years. While some of these decisions involve relatively straightforward applications of conventional transfer pricing methodologies, others address important issues in the application of judicial and statutory anti-avoidance rules as well as the arm's length standard.

This chapter reviews these transfer pricing cases as well as alternative methods for resolving transfer pricing disputes through advance pricing agreements (APAs) or treaty provisions establishing mutual agreement procedures (MAPs) or mandatory arbitration. Section 4.2 provides economic context for understanding transfer pricing in Canada, explaining the importance of international trade and investment to the Canadian economy, the role of Canadian and foreign multinational enterprises (MNEs) in the Canadian economy, and the relationship between Canadian corporate income tax rates and rates in other countries with which Canada has significant trade and investment relationships. Section 4.3 explains the statutory framework for transfer pricing in Canada, providing a historical account of specific statutory provisions governing transfer pricing. Section 4.4 outlines the administrative framework for transfer pricing in Canada, reviewing administrative guidelines that elaborate upon and give more specific meaning to the general language of the statutory provisions governing transfer pricing. Section 4.5 examines transfer pricing cases in Canada, considering decided, settled and ongoing cases. Section 4.6 summarises Canadian experience with alternative methods for resolving transfer pricing disputes, including advance pricing arrangements (APAs), mutual agreement procedures (MAPs) under Canada's tax treaties, and the mandatory arbitration procedure introduced in the Fifth Protocol to the Canada–United States Treaty. Section 4.7 concludes.