29 March 2012 - Canada's Federal Budget made changes to the transfer pricing rules in Section 247 of the Income Tax Act.

If the Canada Revenue Agency (CRA) proposes a "primary adjustment" under section 247 of the Income Tax Act to adjust the price of transactions with related parties in other countries, the CRA can now include a "secondary adjustment" to be treated as a benefit conferred on the related party as a dividend subject to withholding tax under Part XIII of the Act.  

EXAMPLE - if a Canadian corporation buys goods from its non-resident parent corporation for $100 but parties dealing at arm's length would have charged $80, the primary adjustment would be $20.  A secondary adjustment should also arise to reflect the $20 benefit that was conferred on the non-resident parent and treated as dividends for Part XIII tax purposes.

For transactions that occur on are after today, section 247 of the Act will be ammended to add the following subsections:

(12)  Deemed dividends to non-residents

(13)  Repatriation

(14)  Repatriation - interest

(15)  Non-application of ss. 15, 56(2) and 246

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Click here for a copy of Canada's 2012 Budget 

Pages 417-8 explain these changes, and pages 461-3 include
the exact wording of the proposed amendments to section 247 of the Income Tax Act for subsections (12) to (15).

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