Commentary On New Canadian Transfer Pricing Legislation

The November 4, 2025, Canadian federal budget¹ introduced new Canadian transfer pricing legislation containing the most consequential change since 1997. The amendment has something for everyone as a part response to the Cameco² transfer pricing fiasco, part alignment with O.E.C.D. guidance, and part harmonization with treaty partners.

In reply to the government's loss in Cameco, paragraphs 247(2)(a), (b), (c), and (d) of the Income Tax Act³ are replaced by a single paragraph 2.02. Transaction pricing and transaction recharacterization are now variations on a controversy theme focused on "the quantum or nature of the amounts * * * that would have been determined if arm's length conditions in respect of the transaction or series had applied" ruling out a trite response as a defense. To get there, we will now speak of "actual conditions" when we mean what a company did in contrast to "arm's length conditions," with newly codified reference to the O.E.C.D. Guidelines and the selection and application of the "most appropriate method" consistent with those Guidelines.

But wait, where's the Made-in-Canada part that will have the unintended consequence of muddying domestic controversy and resolution of double tax cases with Canada's treaty partners? Have C.R.A. and the Department of Finance gone the Full Multilateral and curtailed this odd institutional behavior? Just when this begins to appear possible, our sense of familiarity is partially restored in the definition of "economically relevant characteristics," now harmonized with the definition used by most of Canada's non-U.S. treaty partners, but now codified as uncertainty due to a reference to "wider generation of value by a multinational enterprise group." While "multinational enterprise group" got a new definition on Budget Day, "generation of value" did not despite the borrowing of O.E.C.D. phrasing. A definition of this term is nowhere to be found in the O.E.C.D. Guidelines, making double tax case resolution of matters featuring an uncertain distribution of a return to intangible assets in a multinational group just a different type of frustrating hand-waving exercise.

This old habit aside, O.E.C.D. harmonization and the codification of the O.E.C.D. Guidelines is a welcome measure in practice and formally introduces limits on C.R.A. overreach previously accessible only by reference. The banishment of certain language that resulted in the too-frequent exposure of "corner" conditions in modern circumstances and unresolvable disputes is welcome. A C.R.A. housecleaning session is now needed to purge irrelevant memorandum guidance and unify legislative meaning, followed by some retraining of its people. Hopefully there is budget allocated to these tasks.

Relief in the form of "contemporaneous documentation simplification measures" remains to be defined, as "prescribed conditions," "prescribed documentation," and "prescribed manner" will need regulations for these prescriptions to be known to companies and their advisors. My hope is that simplification will take the form of an abbreviated approach focused on the substance of method selection and application⁴ and not the fluffy narrative mistaken by many for documentation. This simplification is welcome in principle and consistent with the intent of the Canadian transfer pricing penalty regime, now with a lesser of 10% of gross revenue and C$10 million threshold (increased from C$5 million).

Budget Day also marked the end of Canadian transfer pricing don't-ask-don't-tell when it comes to delivery of documentation to the C.R.A. in response to a written request. The prior three-month deadline has now been reduced to 30 days, thereby mirroring the U.S. requirement, which will help to focus the attention of companies on the essentials of compliance for their transfer pricing positions to coincide with the corporate tax filing deadline when this matters most. This change promotes forward-looking planning and policy maintenance practices in tax and finance departments, rather than hopeful justification in retrospect.

Considering most of Canada's controversy and double tax cases are with the U.S., does the amended legislation remove any irritants to resolving these disputes? Mostly yes, but as with most things in this field, the proof of concept is in the execution.

Footnotes

1. “Notice of Ways and Means Motion to Amend the Income Tax Act and the Income Tax Regulations.” Department of Finance Canada, November 4, 2025.

2. Canada v. Cameco Corporation (2020 FCA 112). The case involved Canada's transfer pricing recharacterization rule in the context of a Canadian mining company and its Swiss sales subsidiary.

3.  Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.)). Department of Justice Canada, November 10, 2025.

4. “Transfer Pricing Consulting Services.” exp2rt.

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