Canada: Federal Pre-Budget Consultations 2015; What We Recommended

Par Robert Robillard - 6 août 2014

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The BEPS initiative is actually « going strong » across the OECD member countries. Transfer pricing documentation is already being recognized as one of the few sources of consensus among the members.

As such, changes to Chapter 5 of the OECD Guidelines are likely to come as early as September or October 2014.

In Canada, a « Consultation on Tax Planning by Multinational Enterprises » was announced in the last Federal Budget on February 11, 2014. We had the opportunity to send our comments on that federal « initiative » in June.

It seems obvious to us that major changes are coming to section 247 ITA in 2015.

As such, here are some of the specific legislative changes that RBRT Inc. suggested in order not to flood Canadian taxpayers with a new set of questionable regulations.

Since changes are indeed coming very soon, these may as well be suggested in a way that will minimize the compliance burden of Canadian taxpayers.

1. Subsection 233.1(4) should be modified to increase the amount that triggers the reporting obligations from $1M to $5M. Subsection 233.1(4) would read as follows:

« A reporting person or partnership that, but for this subsection, would be required under subsection 233.1(2) or 233.1(3) to file an information return for a taxation year or fiscal period is not required to file the return unless the total of all amounts, each of which is the total fair market value of the property or services that relate to a reportable transaction in which the reporting person or partnership and any non-resident person with whom the reporting person or partnership, or a member of the reporting partnership, does not deal at arm’s length in the year or period, or a partnership of which such a non-resident person is a member, as the case may be, participated in the year or period, exceeds $5,000,000. »

This would take into account the substantial international trade increase of the last 15 years.

2. The actual paragraph 247(4)c) should become paragraph 247(4)d), with minor changes, since new paragraph 247(4)c) would read as follows:

« [the taxpayer or the partnership, as the case may be,] makes or obtains, one year after the documentation-due date for the taxation year or fiscal period, at the latest, as the case may be, in which the transaction is entered into, prescribed information to be presented in the prescribed form. »

These new documentation requirements would enable the implementation of Annexes I, II, and III of the upcoming Chapter 5 of the OECD Guidelines in Canada. We also recommended that the new prescribed form be directly modeled on the OECD Masterfile, Local File and CbC Reporting Template to ensure full harmonization.

Annexes I and II would in fact lead to minor changes to paragraphs 247(4)a) and b) whereas Annex III would justify new paragraph 247(4)c). The prescribed form in new paragraph 247(4)c) could reproduce the CbC reporting Template to some extent but without the unnecessary requirements contained in that latter document.

The newly proposed paragraph 247(4)c) includes the excerpt « one year after the documentation-due date » to account for the OECD recommendation to that effect. In practice, the CRA would hence require, through the C-doc request, the previous year’s documentation as it pertains to the Annex III requirements contained in that new paragraph.

However, since new paragraph 247(4)c) would create an unnecessary compliance burden for small and medium enterprises in Canada, a safe harbour is required.

3. As such, new paragraph 247(4)e) suggests a safe harbour provision which would relieve small and medium enterprises, with business sales under $30M, from the new documentation requirements prescribed by new paragraph 247(4)c).

4. Finally, these changes to section 247 ITA would not come into force prior to January 1st, 2017 to enable taxpayers to properly prepare for this new compliance burden.

RBRT Inc. proposals to the Standing Committee on Finance (FINA) were originally presented in French.

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Robert Robillard, CPA, CGA, MBA, M.Sc. Econ.
Transfer Pricing Chief Economist, RBRT Inc.
514-742-8086; robert.robillard « at » localhost
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RBRT Inc. is all about transfer pricing. We specialize in transfer pricing. Our services include transfer pricing documentation, transfer pricing dispute resolution, advanced pricing agreement (APA), value chain management and TP planning, transfer pricing training. The information in this blog post is general information only. Data and information come from sources believed to be reliable but complete accuracy cannot be guaranteed. RBRT Inc. and the author are not responsible or liable for any error, omission or inaccuracy in such information. Readers should seek independent tax advice and tax counsel from RBRT Inc. as required.