Terms of reference – Transfer Pricing Review Committee


The Transfer Pricing Review Committee (TPRC) is responsible for reviewing all cases where a transfer pricing penalty may be assessed (that is, the adjustments are above the threshold for the application of penalties set out in subsection 247(3) of the Income Tax Act (ITA)) to evaluate whether reasonable efforts have been made to determine and use arm’s length prices, in addition to reviewing cases where 247(2)(b) and (d) is being considered as an assessing position. Before a penalty under subsection 247(3) is levied or an assessment under paragraphs 247(2)(b) and (d) is issued, the file must be referred to the TPRC for review to ensure the law is applied fairly and consistently.

Membership and Mandate

The TPRC consists of the following members:

For final consideration of cases involving the application of paragraphs 247(2)(b) and (d) of the ITA (the recharacterization provision), a manager from the Tax Avoidance Division and a senior official from the Tax Policy Branch of the Department of Finance Canada are asked to participate. Neither the taxpayers nor the tax services office audit team attend the TPRC meetings.

The Committee meets every 3 weeks and considers cases referred to it under the mandatory procedure set out below.

The mandate of the TPRC is to ensure fair and consistent application of the transfer pricing penalty and the recharacterization provision. In fulfilling this mandate, the TPRC will consider the overall merits of the taxpayer’s response to the potential application of the penalty and the recharacterization provision.

Mandatory TPRC Referral and Procedure

All proposed assessments to recharacterize a transaction under paragraphs 247(2)(b) and (d) will be referred to the TPRC before the assessment is issued. In addition, tax services offices are responsible for identifying the adjustments for a taxation year that exceed specific thresholds defined below. The Canada Revenue Agency (CRA) recognizes the importance of applying the transfer pricing penalty provisions in a fair and consistent manner. Thus, before a penalty is assessed, tax services offices must refer all cases to the TPRC for review. The audit team will provide the taxpayer’s response to the potential penalty or application of 247(2)(b) and (d), which is included in the materials sent out for the meeting.

The application of penalties under subsection 247(3) must be considered in all cases where the total of transfer pricing adjustments for a taxation year:

The penalty is intended to be a compliance penalty focusing on the efforts that a taxpayer makes to determine and use an arm’s length price and not solely on the ultimate accuracy of the transfer prices. Therefore, provided a taxpayer makes reasonable efforts to determine and use arm’s length prices or allocations, the transfer pricing penalty will not apply. The provisions of subsection 247(4) may deem that taxpayers have not made reasonable efforts to determine and use arm’s length prices or allocations.

The TPRC review will be limited to a determination of whether the taxpayer made reasonable efforts to determine and use arm’s length transfer prices or allocations and possible application of transfer pricing penalties to the transfer pricing adjustments raised. While the issue of how far transactions deviated from the arm’s length principle may arise in this context, the TPRC’s role is not to question or review the specific adjustments that gave rise to the penalty referral. The TSO will be responsible for forwarding the decision and the reasons to the taxpayer.

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