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Department of Finance consultation on Canada’s transfer pricing rules

8 Jun. 2023
Subject Newsroom
Categories Tax alert

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Tax Alert 2023 No. 25, 8 June 2023

On 6 June 2023, the Department of Finance released a consultation paper titled Consultation on Reforming and Modernizing Canada’s Transfer Pricing Rules. The consultation paper, which follows through on the commitment made in the 2021 federal budget to review these rules, includes draft revisions to section 247 of the Income Tax Act (the Act), as well as potential administrative measures, and requests comments from stakeholders by 28 July 2023.

Shortly, EY will release a more extensive Tax Alert reviewing the content of the consultation paper in detail. 

The main proposal concerns possible amendments to the transfer pricing adjustment rule in section 247 of the Act. These potential changes are intended to provide greater clarity on the application of the arm’s length principle in Canada. In addition, the consultation provides stakeholders with the opportunity to provide input on administrative matters connected to transfer pricing, such as documentation and penalty provisions and the possibility of adopting more modern or simplified approaches in specific situations.

The consultation paper poses a series of 23 questions requesting specific input from stakeholders. In particular, Appendix A of the consultation paper outlines draft legislative measures, which include:

  • Revised definitions to improve legislative clarity, including the addition of new definitions for “economically relevant characteristics” and “multinational enterprise group”
  • Introduction of the phrase “comparable circumstances” to limit the hypothetical comparison for the delineated transaction versus what anytwo (or more) persons dealing at arm’s length would have agreed to
  • Increased emphasis on the “conditions” of the delineated transaction or series to allow adjustment where the conditions are different from those that would have been included if the participants had been dealing with each other in comparable circumstances
  • Replacement of the current “recharacterization” provision in paragraphs 247(2)(b) and (d) of the Act with an explicit “non‑recognition” test
  • Inclusion of a “consistency” provision referencing the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

Other administrative measures considered in the consultation paper for which input is requested include the following potentially significant developments:

  • Introduction of de minimis transaction rules and exemptions for small taxpayers
  • Provision of safe‑harbour interest rates or ranges
  • Potential adoption of a standardized OECD style Master File/Local File model for transfer pricing documentation
  • Increased thresholds for transfer pricing penalties
  • Introduction of streamlined pricing approaches for certain transactions, such as low value-adding intra-group services and distribution

The substantive elements of Canada’s transfer pricing rules have not been revised since their original introduction in 1997. The Department of Finance’s consultation paper provides an opportunity for stakeholders to have input on this very important component of Canadian tax law.

EY will review the consultation paper in greater detail and provide comments to the Department of Finance.

Learn more

To view the full Department of Finance consultation paper, visit:
Consultation on Reforming and Modernizing Canada's Transfer Pricing Rules – Canada.ca

For more information, please contact your EY or EY Law advisor or one of the following professionals:


Marlon Alfred
+1 416 932 5151 | marlon.alfred@ca.ey.com

Andrew Clarkson
+1 416 943 2146 | andrew.clarkson@ca.ey.com

Tara Di Rosa
+1 416 943 2671 | tara.dirosa@ca.ey.com

Matthew Sambrook
+1 416 943 2080 | matthew.sambrook@ca.ey.com

Caton Walker
+1 416 943 5240 | caton.walker@ca.ey.com

Andrei Tarassov
+1 416 943 2546 | andrei.tarassov@ca.ey.com


Rene Fleming
+1 613 598 4406 | rene.fleming@ca.ey.com

Paul Mulvihill
+1 613 598 4339 | paul.f.mulvihill@ca.ey.com

Tony Wark
+1 613 598 4322 | tony.wark@ca.ey.com

Kevin O’Reilley
+1 613 598 4892 | kevin.oreilley@ca.ey.com

Quebec and Atlantic Canada

Wael Tfaily
+1 514 879 6695 | wael.tfaily@ca.ey.com

Alfred Zorzi
+1 514 874 4365 | alfred.zorzi@ca.ey.com

Hélène Vaudrin
+1 514 874 4661 | helene.vaudrin@ca.ey.com

British Columbia

Tina Berthaudin
+1 604 891 8207 | tina.berthaudin@ca.ey.com

Greg Noble
+1 604 891 8221 | greg.noble@ca.ey.com

Adrian Tan
+1 604 891 8318 | adrian.tan@ca.ey.com


Andreas Ottosson
+1 403 592 9966 | andreas.ottosson@ca.ey.com

EY Law

Daniel Sandler
+1 416 943 4434 | daniel.sandler@ca.ey.com

Angelo Nikolakakis
+1 514 879 2862 | angelo.nikolakakis@ca.ey.com

David Robertson
+1 403 206 5474 | david.d.robertson@ca.ey.com

Roger Taylor
+1 613 598 4315 | roger.taylor@ca.ey.com

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