CRA Cancels Transfer Pricing Circular / Cameco Appeal Being Heard by FCA
In a Notice to Tax Professionals, the Canada Revenue Agency announced that it is cancelling its main transfer pricing circular – IC 87-2R – for two reasons. First, the CRA now intends to apply transfer pricing rules in priority to other rules in the Income Tax Act, which is consistent with the thrust of the currently proposed amendments to section 247. Second, the CRA wants to incorporate the 2017 OECD guidelines, which arguably permit transactions to be recharacterized in a much broader set of circumstances than ever before, into its administrative guidance.
In a paper at the Canadian Tax Foundation’s 70th Annual Conference, Christopher Montes and Siobhan Goguen discussed the reasons why the more expansive approach to the recharacterization of transactions set out in the 2017 OECD guidelines is not permitted under Canadian law and, in any event, is less desirable from a policy perspective than the current approach under section 247. The Tax Court of Canada’s decision in Cameco supports this position. We look forward to hearing what the Federal Court of Appeal has to say after it hears the appeal of that decision on March 4 and 5.