Income Tax Act Subsection 247

Transfer prices are the prices at which services, tangible property, and intangible property are traded across international borders between related parties.

Canada’s transfer pricing legislation requires, for tax purposes, terms and conditions between related parties in their commercial or financial relations to be those that would have been expected had the parties not been related (i.e. acting at arm’s length).


  • Microsoft Canada licenses software from Microsoft US;
  • These are related companies; and
  • The terms and conditions of the license agreement must be similar to non-related parties.

If transfer pricing legislation did not exist, then companies could use tax havens to shelter all profits made in Canada, and companies would have little to no taxes owing here in Canada.

Canadian legislation requires that companies keep contemporaneous documentation related to the transfer pricing transaction. What this means is that companies must keep daily documentation about their choices when it comes to transfer pricing.

The typical method that the Canada Revenue Agency will accept is the cost-plus method. If the cost to one company is $100, then CRA will allow cost-plus a certain percentage as an acceptable transfer price.

There are other methods that CRA will allow, however they get continually more complicated.

Transfer pricing is an incredibly complex, and difficult area of the law. It is continually in the headlines because multinational companies are using tax havens to shelter profits, and Canada is receiving less and less taxes from these companies.

The seminal case on this issue is the Glaxosmithkline case found below. It went to the Supreme Court before being sent back down to the Tax Court. If you are interested in learning about transfer pricing & vehicle expenses, read the Glaxo case first and foremost.


CRA Resources

IC87-2R International Transfer Pricingic87-2r-e.htm

TPM-02 – Repatriation of funds by Non-residents – Part XIII

TPM-03 – Downward Transfer Pricing Adjustments under Subsection 247(2)

TPM-04 – Third Party Information

TPM-05R – Requests for Contemporaneous Documentation

TPM-06 – Bundled Transactions

TPM-08 – The Dudney Decision: Effects on Fixed Base or Permanent Establishment Audits and Regulation 105 Treaty-Based Waiver Guidelines

TPM-09 – Reasonable efforts under section 247 of the Income Tax Act

TPM-11 – Advance Pricing Arrangement (APA) Rollback

TPM-12 – Accelerated Competent Authority Procedure (ACAP)

TPM-13 – Referrals to the Transfer Pricing Review Committee

TPM-14 – 2010 Update of the OECD Transfer Pricing Guidelines

TPM-15 – Intra-group services and section 247 of the Income Tax Act

TPM-16 – Role of Multiple Year Data in Transfer Pricing Analyses

TPM-17 – The Impact of Government Assistance on Transfer Pricing

Case law

Canada v GalaxoSmithKline Inc., 2012 SCC 52 – Relevant Circumstances in Transfer Price Determinations – Consideration of Other Agreements Between the Parties

More detailed case law analysis may be found here: