The November 4, 2025 federal budget introduced new Canadian transfer pricing legislation containing the most consequential change since 1997. The amendment has something for everyone as part response to the Cameco transfer pricing fiasco, part alignment with OECD 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 Act 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 defence. 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 OECD 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 CRA and the Department of Finance gone the Full Multilateral and curtailed this odd institutional behaviour? 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 OECD phrasing. A definition of this term is nowhere to be found in the OECD 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, OECD harmonization and the codification of the OECD Guidelines is a welcome measure in practice and formally introduces limits on CRA 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 CRA housecleaning session is now needed to purge irrelevant memorandum guidance and unify legislative meaning, followed by some (re)training 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 application 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 $10 million threshold (increased from $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 CRA in response to a written request. The prior 3 month deadline has now been reduced to 30 days (mirroring the U.S. requirement), which will help to focus the attention of companies on the essentials of compliance of 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.