In September 2018, the Tax Court of Canada ruled that the trading and marketing structure of Cameco involving foreign subsidiaries and related transfer pricing methodology for some intercompany purchasing agreements and uranium sales fully adhered to the Canadian law for the questionable tax years.
The gulf between ‘economics over legality’ substance doctrines, for example, accurate delineation within OECD initiatives and Canadian tax law, will continue to widen; the latter having a mere interpretative aid status that can’t triumph over legislative enactments like ITA.
The courts of Canada will continue to apply the ITA depending on the obligations created by taxpayers through their actions and documentation, and on the actual legal rights, instead of some specific situations established in the jurisprudence or prescribed within the ITA (for example, GAAR or the General Anti Avoidance Rule in s. 245 ITA.
This decision was appealed to the Federal Court of Appeal by the Canada Revenue Agency (CRA), which was again ruled definitively in favour of Cameco during June 2020, upholding the finding of the Tax Court.
In February 2021, the CRA’s request to appeal the decision of the Court of Appeal to the Supreme Court was denied by the Supreme Court itself.
Here are some important takeaways from the Cameco transfer pricing saga’s termination:
Currently, the tax law of Canada doesn’t support the continuing application of the TPRR of the CRAs in cases that aren’t exceptional. Previously, the CRA has been quite aggressive in looking to apply the TPRR.
The aim of s. 247 is to ensure that Canadian MNE group members don’t pay too much for goods/services they receive too little for, or acquire from, goods/services they sell to residents that aren’t at arm’s length. In other words, s. 247 doesn’t intend to prevent any MNE from conducting their activities in a manner from what would be found in arm’s length circumstances, for instance, allocating business opportunities to certain MNE group members where it’s logical, centralizing services into a group service provider, etc. as long as these scenarios are priced in compliance with the arm’s length standard.
The TPRR is only applicable in the very restricted circumstances of commercial irrationality when neither of the arm’s length parties has agreed to the transactions entered into between the Canadian tax payer’s non-arm’s length non-resident counterparty and the Canadian taxpayer itself.
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