TPM-15 Intra-group services and section 247 of the Income Tax Act Has Recently Been Released

By Robert Robillard - 19 February 2015

This blogpost originally appeared on

As indicated by the CRA, “the purpose of this memorandum is to clarify the Canada Revenue Agency’s (CRA) policy on several audit and tax issues commonly encountered during the audit of intra-group services. Part 6, Intra‑Group Services, of Information Circular IC87-2R, International Transfer Pricing, provides guidance with respect to intra-group services—this memorandum expands on the guidance discussed.”

Not much in terms of new “guidance” is in fact provided by TPM-15. The CRA starts by reiterating its preference for the direct charge method for intra-group services.

Two “main issues surrounding intra-group services” are highlighted in TPM-15:

1) Determining whether intra-group services have been provided.

2) Valuing intra-group services.

On the issue of whether intra-group services have been provided, TPM-15 Intra-group services and section 247 of the Income Tax Act basically rehearses the content of part 6 of Information Circular 87-2R International Transfer Pricing.

The additional guidance in paragraphs 42-48 pertaining to the costs not deductible under the Income Tax Act is nonetheless welcomed from a Canadian Income Tax Act compliance standpoint.

As for the valuation of intra-group services, the timing of TPM-15 is somewhat unfortunate.

The on-going OECD consultation on Public Discussion Draft on BEPS Action 10: Proposed Modifications to Chapter VII (Low-Value Adding Services) will likely modify the valuation approaches available to intra-group services for transfer pricing purposes.

It may hence have been sensible for the CRA to wait for the upcoming release on that matter instead of drawing upon the actual Chapter 7 and Chapter 9 of the OECD Transfer Pricing Guidelines to provide “additional guidance”.

It must however be pointed out that paragraphs 74-77 of TPM-15 may lead to new or renewed transfer pricing controversies in Canada.

Paragraphs 74 suggests that “if the group service provider merely acts as an agent, [footnote omitted] thereby not actually providing the services itself but facilitating the provision of the services as an intermediary, the arm’s length compensation would be limited to a fee for its agency role.” Moreover, paragraph 75 suggests that such an approach may also be used with respect to the acquisition of goods.

The value of the so-called “agency role” has been a long-standing transfer pricing issue in Canada. As pointed out in paragraph 76, “careful consideration should be given to the appropriate base for calculation of such fees or mark-ups.”

It is indeed ill-fated that no guidance is provided on that key issue by the CRA in new TPM-15.

In other words, such broad statements may lead to obtuse conclusions based on deficient functional analysis in the context of transfer pricing audits.

More than ever, proper transfer pricing documentation is becoming critical to ensure strong operational transfer pricing in front of tax administrations all over the world.

In Canada, TPM-15 Intra-group services and section 247 of the Income Tax Act is harsh reminder of that reality in spite of its obvious illiteracy with respect to the on-going OECD BEPS initiative.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Inc.
514-742-8086; robertrobillard “at”

The convergence of RBRT’s tax, accounting and economics expertise makes a difference. The information in this blog post is general information only. Data and information come from sources believed to be reliable but complete accuracy cannot be guaranteed. RBRT Inc. or the author are not responsible or liable for any error, omission or inaccuracy in such information. The opinions expressed in this blogpost are those of the author. Readers should seek advice and counsel from RBRT Inc. as required.