Tax wiki
s. 247
PART XVI.1 — Transfer Pricing
Definitions
Not yet annotated · Text current to 2026-06-21 · section last amended 2026-03-26
Current text
The definitions in this subsection apply in this section.
actual conditions, in respect of a transaction or series of transactions, means the conditions that actually apply between any of the participants in the transaction or series. (conditions réelles)
arm’s length allocation[Repealed, 2026, c. 3, s. 93]
arm’s length conditions, in respect of a transaction or series of transactions, means the conditions that would have applied had the participants been dealing at arm’s length in comparable circumstances, including the possibility that no transaction or series, or a different transaction or series, would have been concluded had the participants been dealing at arm’s length in comparable circumstances. (conditions de pleine concurrence)
arm’s length transfer price[Repealed, 2026, c. 3, s. 93]
documentation-due date for a taxation year or fiscal period of a person or partnership means
in the case of a person, the person’s filing-due date for the year; or
in the case of a partnership, the day on or before which a return is required by section 229 of the Income Tax Regulations to be filed in respect of the period or would be required to be so filed if that section applied to the partnership. (date limite de production)
economically relevant characteristics, in respect of a transaction or series of transactions, includes
to the extent that the following contractual terms are not inconsistent with the actual conduct of the participants in the transaction or series,
the contractual terms of the transaction or series, and
the contractual terms of each other transaction or series that is relevant to the transaction or series and that involves at least one of the participants or any other member of the multinational enterprise group;
the actual conduct of the participants in the transaction or series, and in particular the functions performed by those participants, taking into account
assets used and risks assumed,
how those functions relate to the wider generation of value by the multinational enterprise group to which the participants belong,
circumstances surrounding the transaction or series, and
industry practices;
the characteristics of any property transferred or service provided;
the economic circumstances of the participants and of the market in which the participants operate; and
the business strategies pursued by the participants. (caractéristiques économiquement pertinentes)
multinational enterprise group means the group made up of the taxpayer or the partnership, or member of the partnership, and the non-resident person (or a partnership of which the non-resident person is a member) who are participants in a transaction or series of transactions referred to in subsection (2), as well as any other person that does not deal at arm’s length with at least one of the participants. (groupe d’entreprises multinationales)
qualifying cost contribution arrangement means an arrangement under which reasonable efforts are made by the participants in the arrangement to establish a basis for contributing to, and to contribute on that basis to, the cost of producing, developing or acquiring any property, or acquiring or performing any services, in proportion to the benefits which each participant is reasonably expected to derive from the property or services, as the case may be, as a result of the arrangement. (arrangement admissible de participation au coût)
tax benefit[Repealed, 2026, c. 3, s. 93]
transaction includes an arrangement or event. (opération)
transfer price[Repealed, 2026, c. 3, s. 93]
transfer pricing capital adjustment of a taxpayer for a taxation year means the total of
all amounts each of which is
1/2 of the amount, if any, by which the adjusted cost base to the taxpayer of a capital property (other than a depreciable property) is reduced in the year because of an adjustment made under subsection (2.02), or
[Repealed, 2016, c. 12, s. 62]
the amount, if any, by which the capital cost to the taxpayer of a depreciable property is reduced in the year because of an adjustment made under subsection (2.02); and
all amounts each of which is that proportion of the total of
1/2 of the amount, if any, by which the adjusted cost base to a partnership of a capital property (other than a depreciable property) is reduced in a fiscal period that ends in the year because of an adjustment made under subsection (2.02), and
[Repealed, 2016, c. 12, s. 62]
the amount, if any, by which the capital cost to a partnership of a depreciable property is reduced in the period because of an adjustment made under subsection (2.02),
that
the taxpayer’s share of the income or loss of the partnership for the period
is of
the income or loss of the partnership for the period,
and where the income and loss of the partnership are nil for the period, the income of the partnership for the period is deemed to be $1,000,000 for the purpose of determining a taxpayer’s share of the partnership’s income for the purpose of this definition. (redressement de capital)
transfer pricing capital setoff adjustment of a taxpayer for a taxation year means the amount, if any, that would be the taxpayer’s transfer pricing capital adjustment for the year if the references, in the definition transfer pricing capital adjustment, to “reduced” were read as “increased”. (redressement compensatoire de capital)
Transfer Pricing Guidelines means
if no text is prescribed under paragraph (b), the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, as adopted by the Committee on Fiscal Affairs on January 7, 2022; or
any text prescribed by regulation. (Principes applicables en matière de prix de transfert)
transfer pricing income adjustment of a taxpayer for a taxation year means the total of all amounts each of which is the amount, if any, by which an adjustment made under subsection (2.02) (other than an adjustment included in determining a transfer pricing capital adjustment of the taxpayer for a taxation year) would result in an increase in the taxpayer’s income for the year or a decrease in a loss of the taxpayer for the year from a source if that adjustment were the only adjustment made under subsection (2.02). (redressement de revenu)
transfer pricing income setoff adjustment of a taxpayer for a taxation year means the total of all amounts each of which is the amount, if any, by which an adjustment made under subsection (2.02) (other than an adjustment included in determining a transfer pricing capital setoff adjustment of the taxpayer for a taxation year) would result in a decrease in the taxpayer’s income for the year or an increase in a loss of the taxpayer for the year from a source if that adjustment were the only adjustment made under subsection (2.02). (redressement compensatoire de revenu)
Delineation of transaction or series
(1.1)For the purposes of this section, a transaction or series of transactions is to be analyzed and determined with reference to the economically relevant characteristics of the transaction or series.
Interpretation of conditions
(1.2)For the purposes of the definitions actual conditions and arm’s length conditions in subsection (1), the word “conditions” is to be interpreted broadly, and includes, but is not limited to, price, rate, gross margin, net margin, the division of profit, contributions to costs and any commercial or financial information relevant to the determination of the quantum or nature of initial amounts or adjusted amounts, as the case may be.
Transfer pricing adjustment — application
(2)Subsection (2.02) applies to a taxpayer or a partnership in respect of a transaction or series of transactions if
the taxpayer or the partnership and a non-resident person with whom the taxpayer or the partnership, or a member of the partnership, does not deal at arm’s length (or a partnership of which the non-resident person is a member) are participants in the transaction or series; and
the transaction or series includes actual conditions different from arm’s length conditions.
Transfer pricing adjustment — deeming rule
(2.01)For the purposes of paragraph (2)(b), a transaction or series of transactions is deemed to include actual conditions different from arm’s length conditions if a condition does not exist in respect of the transaction or series, but would have existed had the participants in the transaction or series been dealing at arm’s length in comparable circumstances.
Transfer pricing adjustment
(2.02)If this subsection applies to a taxpayer or a partnership in respect of a transaction or series of transactions, any amounts (in this section referred to as the “initial amounts”) that would be determined for the purposes of applying the provisions of this Act (if this Act were read without reference to this section and section 245) in respect of the taxpayer or the partnership for a taxation year or fiscal period are to be adjusted (in this section referred to as an “adjustment”) to the quantum or nature of the amounts (in this section referred to as the “adjusted amounts”) that would have been determined if arm’s length conditions in respect of the transaction or series had applied.
Transfer Pricing Guidelines
(2.03)For the purposes of determining the effect of this Part in relation to a taxpayer or a partnership, each of the analysis and determination of a transaction or series of transactions under subsection (1.1), the identification of arm’s length conditions under paragraph (2)(b) and the determination of amounts under subsection (2.02) are to be made so as to best achieve consistency with the Transfer Pricing Guidelines.
Most appropriate method
(2.04)For the purposes of this Part, whether a transaction or series of transactions includes actual conditions that differ from arm’s length conditions is to be determined through an analysis where the most appropriate method is selected and applied in accordance with the Transfer Pricing Guidelines.
Ordering
(2.1)For the purpose of applying subsection (2.02) in the context of the other provisions of this Act, the following order is to be applied:
first determine each of the initial amounts;
then make the adjustments, if any, to each of the initial amounts; and
then apply each of the provisions of this Act (other than subsection (2.02) and, for greater certainty, including section 245) using the adjusted amounts.
Penalty
(3)A taxpayer (other than a taxpayer all of whose taxable income for the year is exempt from tax under Part I) is liable to a penalty for a taxation year equal to 10% of the amount determined under paragraph 247(3)(a) in respect of the taxpayer for the year, where
the amount, if any, by which
the total of
the taxpayer’s transfer pricing capital adjustment for the year, and
the taxpayer’s transfer pricing income adjustment for the year
exceeds the total of
the total of all amounts each of which is the portion of the taxpayer’s transfer pricing capital adjustment or transfer pricing income adjustment for the year that can reasonably be considered to relate to a particular transaction or series of transactions, where
the transaction or series is a qualifying cost contribution arrangement in which the taxpayer or a partnership of which the taxpayer is a member is a participant, or
in any other case, the taxpayer or a partnership of which the taxpayer is a member made reasonable efforts to determine amounts that are based on arm’s length conditions in respect of the transaction or series, and to use those amounts for the purposes of this Act, and
the total of all amounts, each of which is the portion of the taxpayer’s transfer pricing capital setoff adjustment or transfer pricing income setoff adjustment for the year that can reasonably be considered to relate to a particular transaction or series, where
the transaction or series is a qualifying cost contribution arrangement in which the taxpayer or a partnership of which the taxpayer is a member is a participant, or
in any other case, the taxpayer or a partnership of which the taxpayer is a member made reasonable efforts to determine amounts that are based on arm’s length conditions in respect of the transaction or series, and to use those amounts for the purposes of this Act,
is greater than
the lesser of
10% of the amount that would be the taxpayer’s gross revenue for the year if this Act were read without reference to subsection (2.02), subsections 69(1) and (1.2) and section 245, and
$10,000,000.
Contemporaneous documentation
(4)For the purposes of subsection (3) and the definition qualifying cost contribution arrangement in subsection (1), a taxpayer or a partnership is deemed not to have made reasonable efforts to determine and use amounts that are based on arm’s length conditions in respect of a transaction or series of transactions or not to have participated in a transaction or series that is a qualifying cost contribution arrangement, unless the taxpayer or the partnership, as the case may be,
makes or obtains, on or before the taxpayer’s or partnership’s documentation-due date for the taxation year or fiscal period, as the case may be, in which the transaction or series is entered into, records or documents that provide a description that is complete and accurate in all material respects of
the property or services to which the transaction or series relates,
the contractual terms of the transaction or series and their relationship, if any, to the contractual terms of each other transaction or series that is relevant to the transaction or series and that involves at least one of the participants or any other member of the multinational enterprise group,
the identity of the participants and their relationship to each other at the time the transaction or series was entered into,
the functions performed by each of the participants in the transaction or series, based on their actual conduct, taking into account
assets used and risks assumed,
how those functions relate to the wider generation of value by the multinational enterprise group to which the participants belong,
circumstances surrounding the transaction or series, and
industry practices,
the data and methods considered and the analysis performed to determine amounts that are based on arm’s length conditions and to select and apply the most appropriate method in accordance with the Transfer Pricing Guidelines in respect of the transaction or series, and
the economic circumstances, assumptions, policies and business strategies, if any, that influenced the determination of the amounts that are based on arm’s length conditions in respect of the transaction or series;
for each subsequent taxation year or fiscal period, if any, in which the transaction or series continues, makes or obtains, on or before the taxpayer’s or partnership’s documentation-due date for that year or period, as the case may be, records or documents that completely and accurately describe each material change in the year or period to the matters referred to in any of subparagraphs (a)(i) to (vi) in respect of the transaction or series; and
provides the records or documents described in paragraphs (a) and (b) to the Minister within 30 days after service, made personally or by registered or certified mail, of a written request therefor.
Contemporaneous documentation simplification measures
(4.1)Subsection (4) does not apply to a taxpayer or partnership for a particular taxation year or fiscal period in respect of a transaction or series if the taxpayer or partnership
meets prescribed conditions; and
makes, obtains and provides prescribed documentation in prescribed manner.
Partner’s gross revenue
(5)For the purpose of subparagraph 247(3)(b)(i), where a taxpayer is a member of a partnership in a taxation year, the taxpayer’s gross revenue for the year as a member of the partnership from any activities carried on by means of the partnership is deemed to be that proportion of the amount that would be the partnership’s gross revenue from the activities if it were a taxpayer (to the extent that amount does not include amounts received or receivable from other partnerships of which the taxpayer is a member in the year), for a fiscal period of the partnership that ends in the year, that
the taxpayer’s share of the income or loss of the partnership from its activities for the period
is of
the income or loss of the partnership from its activities for the period,
and where the income and loss of the partnership from its activities are nil for the period, the income of the partnership from its activities for the period is deemed to be $1,000,000 for the purpose of determining a taxpayer’s share of the partnership’s income from its activities for the purpose of this subsection.
Deemed member of partnership
(6)For the purposes of this section, where a person is a member of a partnership that is a member of another partnership,
the person is deemed to be a member of the other partnership; and
the person’s share of the income or loss of the other partnership is deemed to be equal to the amount of that income or loss to which the person is directly or indirectly entitled.
Exclusion — loans to certain controlled foreign affiliates
(7)Where, in a taxation year of a corporation resident in Canada, a non-resident person owes an amount to the corporation, the non-resident person is a controlled foreign affiliate of the corporation for the purpose of section 17 throughout the period in the year during which the amount is owing and it is established that the amount owing is an amount owing described in paragraph 17(8)(a) or (b), subsection (2.02) does not apply to adjust the amount of interest paid, payable or accruing in the year on the amount owing.
Exclusion — certain guarantees
(7.1)Subsection (2.02) does not apply to adjust an amount of consideration paid, payable or accruing to a corporation resident in Canada (in this subsection referred to as the “parent”) in a taxation year of the parent for the provision of a guarantee to a person or partnership (in this subsection referred to as the “lender”) for the repayment, in whole or in part, of a particular amount owing to the lender by a non-resident person, if
the non-resident person is a controlled foreign affiliate of the parent for the purposes of section 17 throughout the period in the year during which the particular amount is owing; and
it is established that the particular amount would be an amount owing described in paragraph 17(8)(a) or (b) if it were owed to the parent.
[Repealed, 2021, c. 23, s. 60]
Anti-avoidance
(9)For the purposes of determining a taxpayer’s gross revenue under subparagraph 247(3)(b)(i) and subsection 247(5), a transaction or series of transactions is deemed not to have occurred, if one of the purposes of the transaction or series was to increase the taxpayer’s gross revenue for the purpose of subsection 247(3).
No adjustment unless appropriate
(10)An adjustment (other than an adjustment that results in or increases a transfer pricing capital adjustment or a transfer pricing income adjustment of a taxpayer for a taxation year) shall not be made under subsection (2.02) unless, in the opinion of the Minister, the circumstances are such that it would be appropriate that the adjustment be made.
Provisions applicable to Part
(11)Sections 152, 158, 159, 162 to 167 and Division J of Part I apply to this Part, with such modifications as the circumstances require.
Deemed dividends to non-residents
(12)For the purposes of Part XIII, if a particular corporation that is a resident of Canada for the purposes of Part XIII would have a transfer pricing capital adjustment or a transfer pricing income adjustment for a taxation year, if the particular corporation, or a partnership of which the particular corporation is a member, had undertaken no transactions or series of transactions other than those in which a particular non-resident person, or a partnership of which the particular non-resident person is a member, that does not deal at arm’s length with the particular corporation (other than a corporation that was for the purposes of section 17 a controlled foreign affiliate of the particular corporation throughout the period during which the transaction or series of transactions occurred) was a participant,
a dividend is deemed to have been paid by the particular corporation and received by the particular non-resident person immediately before the end of the taxation year; and
the amount of the dividend is the amount, if any, by which
the amount that would be the portion of the total of the particular corporation’s transfer pricing capital adjustment and transfer pricing income adjustment for the taxation year that could reasonably be considered to relate to the particular non-resident person if
the only transactions or series of transactions undertaken by the particular corporation were those in which the particular non-resident person was a participant,
the definition transfer pricing capital adjustment in subsection (1) were read without reference to the references therein to “1/2 of”, and
the definition transfer pricing income adjustment in subsection (1) were read as follows: “of a taxpayer for a taxation year means the total of all amounts each of which is the amount, if any, that would result, from an adjustment made under subsection (2.02) (other than an adjustment included in determining a transfer pricing capital adjustment of the taxpayer for a taxation year), in an increase in the taxpayer’s income for the year or a decrease in a loss of the taxpayer for the year from a source if that adjustment were the only adjustment made under subsection (2.02)”
exceeds
the amount that would be the portion of the total of the particular corporation’s transfer pricing capital setoff adjustment, and transfer pricing income setoff adjustment, for the taxation year that could reasonably be considered to relate to the particular non-resident person if
the only transactions or series of transactions undertaken by the particular corporation were those in which the particular non-resident person was a participant,
the definition transfer pricing capital adjustment in subsection (1) were read without reference to the references therein to “1/2 of”,
the definition transfer pricing income adjustment in subsection (1) were read as follows: “of a taxpayer for a taxation year means the total of all amounts each of which is the amount, if any, that would result, from an adjustment made under subsection (2.02) (other than an adjustment included in determining a transfer pricing capital adjustment of the taxpayer for a taxation year), in an increase in the taxpayer’s income for the year or a decrease in a loss of the taxpayer for the year from a source if that adjustment were the only adjustment made under subsection (2.02)”, and
the definition transfer pricing income setoff adjustment in subsection (1) were read as follows: “of a taxpayer for a taxation year means the total of all amounts each of which is the amount, if any, that would result, from an adjustment made under subsection (2.02) (other than an adjustment included in determining a transfer pricing capital set-off adjustment of the taxpayer for the taxation year), in a decrease in the taxpayer’s income for the year or in an increase in a loss of the taxpayer for the year from a source if that adjustment were the only adjustment made under subsection (2.02)”.
Repatriation
(13)If a dividend is deemed by subsection (12) to have been paid by a corporation and received by a non-resident person, and a particular amount has been paid with the concurrence of the Minister by the non-resident person to the corporation,
the amount of the dividend may be reduced by the amount (in this subsection referred to as the “reduction”) that the Minister considers appropriate, having regard to all the circumstances, and
subsections 227(8.1) and (8.3) apply as if
the amount of the dividend were not reduced, and
on the day on which the particular amount was paid, the corporation paid to the Receiver General an amount equal to the amount that would be required to be withheld and remitted under Part XIII in respect of the reduction.
Repatriation — interest
(14)If the amount of a dividend is reduced under paragraph (13)(a), the amount of interest payable by a taxpayer because of paragraph (13)(b) may be reduced to the amount that the Minister considers appropriate, having regard to all the circumstances, including the provision of reciprocal treatment by the country in which the non-resident person referred to in subsection (13) is resident.
Non-application of provisions
(15)Section 15, subsections 56(2) and 212.3(2) and section 246 do not apply in respect of an amount to the extent that a dividend is deemed by subsection (12) (determined without reference to subsection (13)) to have been paid in respect of the amount.
Source: Justice Laws Website. Not an official version.
Historic text
Immediately preceding version, in force from 2021-06-29 to 2026-03-25:
Show the text in force 2021-06-29 to 2026-03-25
Definitions
247 (1) The definitions in this subsection apply in this section.
arm’s length allocationarm’s length allocation means, in respect of a transaction, an allocation of profit or loss that would have occurred between the participants in the transaction if they had been dealing at arm’s length with each other. (attribution de pleine concurrence)
arm’s length transfer pricearm’s length transfer price means, in respect of a transaction, an amount that would have been a transfer price in respect of the transaction if the participants in the transaction had been dealing at arm’s length with each other. (prix de transfert de pleine concurrence)
documentation-due datedocumentation-due date for a taxation year or fiscal period of a person or partnership means
(a) in the case of a person, the person’s filing-due date for the year; or
(b) in the case of a partnership, the day on or before which a return is required by section 229 of the Income Tax Regulations to be filed in respect of the period or would be required to be so filed if that section applied to the partnership. (date limite de production)
qualifying cost contribution arrangement means an arrangement under which reasonable efforts are made by the participants in the arrangement to establish a basis for contributing to, and to contribute on that basis to, the cost of producing, developing or acquiring any property, or acquiring or performing any services, in proportion to the benefits which each participant is reasonably expected to derive from the property or services, as the case may be, as a result of the arrangement. (arrangement admissible de participation au coût)
tax benefittax benefit has the meaning assigned by subsection 245(1). (avantage fiscal)
transactiontransaction includes an arrangement or event. (opération)
transfer pricetransfer price means, in respect of a transaction, an amount paid or payable or an amount received or receivable, as the case may be, by a participant in the transaction as a price, a rental, a royalty, a premium or other payment for, or for the use, production or reproduction of, property or as consideration for services (including services provided as an employee and the insurance or reinsurance of risks) as part of the transaction. (prix de transfert)
transfer pricing capital adjustmenttransfer pricing capital adjustment of a taxpayer for a taxation year means the total of
(a) all amounts each of which is
(i) 1/2 of the amount, if any, by which the adjusted cost base to the taxpayer of a capital property (other than a depreciable property) is reduced in the year because of an adjustment made under subsection (2), or
(ii) [Repealed, 2016, c. 12, s. 62]
(iii) the amount, if any, by which the capital cost to the taxpayer of a depreciable property is reduced in the year because of an adjustment made under subsection (2); and
(b) all amounts each of which is that proportion of the total of
(i) 1/2 of the amount, if any, by which the adjusted cost base to a partnership of a capital property (other than a depreciable property) is reduced in a fiscal period that ends in the year because of an adjustment made under subsection (2), and
(ii) [Repealed, 2016, c. 12, s. 62]
(iii) the amount, if any, by which the capital cost to a partnership of a depreciable property is reduced in the period because of an adjustment made under subsection (2),
that
(iv) the taxpayer’s share of the income or loss of the partnership for the period
is of
(v) the income or loss of the partnership for the period,
and where the income and loss of the partnership are nil for the period, the income of the partnership for the period is deemed to be $1,000,000 for the purpose of determining a taxpayer’s share of the partnership’s income for the purpose of this definition. (redressement de capital)
transfer pricing capital setoff adjustment of a taxpayer for a taxation year means the amount, if any, that would be the taxpayer’s transfer pricing capital adjustment for the year if the references, in the definition transfer pricing capital adjustment, to “reduced” were read as “increased”. (redressement compensatoire de capital)
transfer pricing income adjustmenttransfer pricing income adjustment of a taxpayer for a taxation year means the total of all amounts each of which is the amount, if any, by which an adjustment made under subsection 247(2) (other than an adjustment included in determining a transfer pricing capital adjustment of the taxpayer for a taxation year) would result in an increase in the taxpayer’s income for the year or a decrease in a loss of the taxpayer for the year from a source if that adjustment were the only adjustment made under subsection 247(2). (redressement de revenu)
transfer pricing income setoff adjustmenttransfer pricing income setoff adjustment of a taxpayer for a taxation year means the total of all amounts each of which is the amount, if any, by which an adjustment made under subsection 247(2) (other than an adjustment included in determining a transfer pricing capital setoff adjustment of the taxpayer for a taxation year) would result in a decrease in the taxpayer’s income for the year or an increase in a loss of the taxpayer for the year from a source if that adjustment were the only adjustment made under subsection 247(2). (redressement compensatoire de revenu)
Transfer pricing adjustment
(2) Where a taxpayer or a partnership and a non-resident person with whom the taxpayer or the partnership, or a member of the partnership, does not deal at arm’s length (or a partnership of which the non-resident person is a member) are participants in a transaction or a series of transactions and
(a) the terms or conditions made or imposed, in respect of the transaction or series, between any of the participants in the transaction or series differ from those that would have been made between persons dealing at arm’s length, or
(b) the transaction or series
(i) would not have been entered into between persons dealing at arm’s length, and
(ii) can reasonably be considered not to have been entered into primarily for bona fide purposes other than to obtain a tax benefit,
any amounts (in subsection (2.1) referred to as the “initial amounts”) that would be determined for the purposes of applying the provisions of this Act (if this Act were read without reference to this section and section 245) in respect of the taxpayer or the partnership for a taxation year or fiscal period shall be adjusted (in this section referred to as an “adjustment”) to the quantum or nature of the amounts (in subsection (2.1) referred to as the “adjusted amounts”) that would have been determined if,
(c) where only paragraph 247(2)(a) applies, the terms and conditions made or imposed, in respect of the transaction or series, between the participants in the transaction or series had been those that would have been made between persons dealing at arm’s length, or
(d) where paragraph 247(2)(b) applies, the transaction or series entered into between the participants had been the transaction or series that would have been entered into between persons dealing at arm’s length, under terms and conditions that would have been made between persons dealing at arm’s length.
Ordering
(2.1) For the purpose of applying subsection (2) in the context of the other provisions of this Act, the following order is to be applied:
(a) first determine each of the initial amounts;
(b) then make the adjustments, if any, to each of the initial amounts; and
(c) then apply each of the provisions of this Act (other than subsection (2) and, for greater certainty, including section 245) using the adjusted amounts.
Penalty
(3) A taxpayer (other than a taxpayer all of whose taxable income for the year is exempt from tax under Part I) is liable to a penalty for a taxation year equal to 10% of the amount determined under paragraph 247(3)(a) in respect of the taxpayer for the year, where
(a) the amount, if any, by which
(i) the total of
(A) the taxpayer’s transfer pricing capital adjustment for the year, and
(B) the taxpayer’s transfer pricing income adjustment for the year
exceeds the total of
(ii) the total of all amounts each of which is the portion of the taxpayer’s transfer pricing capital adjustment or transfer pricing income adjustment for the year that can reasonably be considered to relate to a particular transaction, where
(A) the transaction is a qualifying cost contribution arrangement in which the taxpayer or a partnership of which the taxpayer is a member is a participant, or
(B) in any other case, the taxpayer or a partnership of which the taxpayer is a member made reasonable efforts to determine arm’s length transfer prices or arm’s length allocations in respect of the transaction, and to use those prices or allocations for the purposes of this Act, and
(iii) the total of all amounts, each of which is the portion of the taxpayer’s transfer pricing capital setoff adjustment or transfer pricing income setoff adjustment for the year that can reasonably be considered to relate to a particular transaction, where
(A) the transaction is a qualifying cost contribution arrangement in which the taxpayer or a partnership of which the taxpayer is a member is a participant, or
(B) in any other case, the taxpayer or a partnership of which the taxpayer is a member made reasonable efforts to determine arm’s length transfer prices or arm’s length allocations in respect of the transaction, and to use those prices or allocations for the purposes of this Act,
is greater than
(b) the lesser of
(i) 10% of the amount that would be the taxpayer’s gross revenue for the year if this Act were read without reference to subsection 247(2), subsections 69(1) and 69(1.2) and section 245, and
(ii) $5,000,000.
Contemporaneous documentation
(4) For the purposes of subsection 247(3) and the definition qualifying cost contribution arrangement in subsection 247(1), a taxpayer or a partnership is deemed not to have made reasonable efforts to determine and use arm’s length transfer prices or arm’s length allocations in respect of a transaction or not to have participated in a transaction that is a qualifying cost contribution arrangement, unless the taxpayer or the partnership, as the case may be,
(a) makes or obtains, on or before the taxpayer’s or partnership’s documentation-due date for the taxation year or fiscal period, as the case may be, in which the transaction is entered into, records or documents that provide a description that is complete and accurate in all material respects of
(i) the property or services to which the transaction relates,
(ii) the terms and conditions of the transaction and their relationship, if any, to the terms and conditions of each other transaction entered into between the participants in the transaction,
(iii) the identity of the participants in the transaction and their relationship to each other at the time the transaction was entered into,
(iv) the functions performed, the property used or contributed and the risks assumed, in respect of the transaction, by the participants in the transaction,
(v) the data and methods considered and the analysis performed to determine the transfer prices or the allocations of profits or losses or contributions to costs, as the case may be, in respect of the transaction, and
(vi) the assumptions, strategies and policies, if any, that influenced the determination of the transfer prices or the allocations of profits or losses or contributions to costs, as the case may be, in respect of the transaction;
(b) for each subsequent taxation year or fiscal period, if any, in which the transaction continues, makes or obtains, on or before the taxpayer’s or partnership’s documentation-due date for that year or period, as the case may be, records or documents that completely and accurately describe each material change in the year or period to the matters referred to in any of subparagraphs 247(4)(a)(i) to 247(4)(a)(vi) in respect of the transaction; and
(c) provides the records or documents described in paragraphs 247(4)(a) and 247(4)(b) to the Minister within 3 months after service, made personally or by registered or certified mail, of a written request therefor.
Partner’s gross revenue
(5) For the purpose of subparagraph 247(3)(b)(i), where a taxpayer is a member of a partnership in a taxation year, the taxpayer’s gross revenue for the year as a member of the partnership from any activities carried on by means of the partnership is deemed to be that proportion of the amount that would be the partnership’s gross revenue from the activities if it were a taxpayer (to the extent that amount does not include amounts received or receivable from other partnerships of which the taxpayer is a member in the year), for a fiscal period of the partnership that ends in the year, that
(a) the taxpayer’s share of the income or loss of the partnership from its activities for the period
is of
(b) the income or loss of the partnership from its activities for the period,
and where the income and loss of the partnership from its activities are nil for the period, the income of the partnership from its activities for the period is deemed to be $1,000,000 for the purpose of determining a taxpayer’s share of the partnership’s income from its activities for the purpose of this subsection.
Deemed member of partnership
(6) For the purposes of this section, where a person is a member of a partnership that is a member of another partnership,
(a) the person is deemed to be a member of the other partnership; and
(b) the person’s share of the income or loss of the other partnership is deemed to be equal to the amount of that income or loss to which the person is directly or indirectly entitled.
Exclusion for loans to certain controlled foreign affiliates
(7) Where, in a taxation year of a corporation resident in Canada, a non-resident person owes an amount to the corporation, the non-resident person is a controlled foreign affiliate of the corporation for the purpose of section 17 throughout the period in the year during which the amount is owing and it is established that the amount owing is an amount owing described in paragraph 17(8)(a) or (b), subsection (2) does not apply to adjust the amount of interest paid, payable or accruing in the year on the amount owing.
Exclusion — certain guarantees
(7.1) Subsection (2) does not apply to adjust an amount of consideration paid, payable or accruing to a corporation resident in Canada (in this subsection referred to as the “parent”) in a taxation year of the parent for the provision of a guarantee to a person or partnership (in this subsection referred to as the “lender”) for the repayment, in whole or in part, of a particular amount owing to the lender by a non-resident person, if
(a) the non-resident person is a controlled foreign affiliate of the parent for the purposes of section 17 throughout the period in the year during which the particular amount is owing; and
(b) it is established that the particular amount would be an amount owing described in paragraph 17(8)(a) or (b) if it were owed to the parent.
(8) [Repealed, 2021, c. 23, s. 60]
Anti-avoidance
(9) For the purposes of determining a taxpayer’s gross revenue under subparagraph 247(3)(b)(i) and subsection 247(5), a transaction or series of transactions is deemed not to have occurred, if one of the purposes of the transaction or series was to increase the taxpayer’s gross revenue for the purpose of subsection 247(3).
No adjustment unless appropriate
(10) An adjustment (other than an adjustment that results in or increases a transfer pricing capital adjustment or a transfer pricing income adjustment of a taxpayer for a taxation year) shall not be made under subsection 247(2) unless, in the opinion of the Minister, the circumstances are such that it would be appropriate that the adjustment be made.
Provisions applicable to Part
(11) Sections 152, 158, 159, 162 to 167 and Division J of Part I apply to this Part, with such modifications as the circumstances require.
Deemed dividends to non-residents
(12) For the purposes of Part XIII, if a particular corporation that is a resident of Canada for the purposes of Part XIII would have a transfer pricing capital adjustment or a transfer pricing income adjustment for a taxation year, if the particular corporation, or a partnership of which the particular corporation is a member, had undertaken no transactions or series of transactions other than those in which a particular non-resident person, or a partnership of which the particular non-resident person is a member, that does not deal at arm’s length with the particular corporation (other than a corporation that was for the purposes of section 17 a controlled foreign affiliate of the particular corporation throughout the period during which the transaction or series of transactions occurred) was a participant,
(a) a dividend is deemed to have been paid by the particular corporation and received by the particular non-resident person immediately before the end of the taxation year; and
(b) the amount of the dividend is the amount, if any, by which
(i) the amount that would be the portion of the total of the particular corporation’s transfer pricing capital adjustment and transfer pricing income adjustment for the taxation year that could reasonably be considered to relate to the particular non-resident person if
(A) the only transactions or series of transactions undertaken by the particular corporation were those in which the particular non-resident person was a participant, and
(B) the definition transfer pricing capital adjustment in subsection (1) were read without reference to the references therein to “1/2 of” and “3/4 of”
exceeds
(ii) the amount that would be the portion of the total of the particular corporation’s transfer pricing capital setoff adjustment, and transfer pricing income setoff adjustment, for the taxation year that could reasonably be considered to relate to the particular non-resident person if
(A) the only transactions or series of transactions undertaken by the particular corporation were those in which the particular non-resident person was a participant, and
(B) the definition transfer pricing capital adjustment in subsection (1) were read without reference to the references therein to “1/2 of” and “3/4 of”.
Repatriation
(13) If a dividend is deemed by subsection (12) to have been paid by a corporation and received by a non-resident person, and a particular amount has been paid with the concurrence of the Minister by the non-resident person to the corporation,
(a) the amount of the dividend may be reduced by the amount (in this subsection referred to as the “reduction”) that the Minister considers appropriate, having regard to all the circumstances, and
(b) subsections 227(8.1) and (8.3) apply as if
(i) the amount of the dividend were not reduced, and
(ii) on the day on which the particular amount was paid, the corporation paid to the Receiver General an amount equal to the amount that would be required to be withheld and remitted under Part XIII in respect of the reduction.
Repatriation — interest
(14) If the amount of a dividend is reduced under paragraph (13)(a), the amount of interest payable by a taxpayer because of paragraph (13)(b) may be reduced to the amount that the Minister considers appropriate, having regard to all the circumstances, including the provision of reciprocal treatment by the country in which the non-resident person referred to in subsection (13) is resident.
Non-application of provisions
(15) Section 15, subsections 56(2) and 212.3(2) and section 246 do not apply in respect of an amount to the extent that a dividend is deemed by subsection (12) (determined without reference to subsection (13)) to have been paid in respect of the amount.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1998, c. 19, s. 238
- 1999, c. 22, s. 79
- 2001, c. 17, s. 187
- 2005, c. 19, s. 53
- 2012, c. 31, s. 54
- 2013, c. 40, s. 88
- 2016, c. 12, s. 62
- 2021, c. 23, s. 60
Earlier versions: Justice Laws point-in-time versions of the Act (from 31 August 2004), and CanLII (under “Versions”). On Justice Laws, each version of section 247 links to the one before it.
Enacting and amending legislation
- 1998, c. 19, s. 238; 1999, c. 22, s. 79; 2001, c. 17, s. 187; 2005, c. 19, s. 53; 2012, c. 31, s. 54; 2013, c. 40, s. 88; 2016, c. 12, s. 62
- 2021, c. 23, s. 60
- 2026, c. 3, s. 93
Text before 2004 is found in the annual Statutes of Canada cited above. Application and coming-into-force provisions are not part of the consolidation; see the amending Acts.
Cross-references
Citation
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 247.