(Reblog) Transfer Pricing in Canada: What is Coming in Terms of Documentation

By Robert Robillard - 10 décembre 2014

pdf format: BEPS Transfer Pricing Documentation in Canada

This blogpost originally appeared on rbrt.ca.

RBRT Transfer Pricing’s Technical Note
No. 2014-10
(originally released on September 18, 2014)


This RBRT Transfer Pricing’s Technical Note recaps and updates the work accomplished by the OECD member countries within the framework of the Base Erosion and Profit Shifting initiative (BEPS). It focuses on the new transfer pricing documentation rules.

In February 2013, the OECD released the document titled Addressing Base Erosion and Profit Shifting. It was followed in July 2013 by the Action Plan on Base Erosion and Profit Shifting which comprises a 15-point action plan.

On January 23, 2014, the first OECD webcast on the BEPS initiative highlighted that a first series of deliverables was expected as soon as September 2014 to address hybrid mismatch arrangements, perceived tax treaty abuse, the transfer pricing aspects of intangibles and transfer pricing documentation, among other subjects.

As it pertains to transfer pricing documentation, country-by-country (CbC) reporting was being considered. The Discussion Draft on Transfer Pricing Documentation and CbC Reporting was released on January 30, 2014, for public consultation.

With respect to the Country-by-country report, for each entity resident in each country data on the following would have been required:

  • Revenues;
  • Earnings before income tax;
  • Income tax paid;
  • Total withholding tax paid;
  • Stated capital and accumulated earnings;
  • Number of employees;
  • Total employee expense;
  • Tangible assets other than cash and cash equivalents;
  • Royalties paid and received;
  • Interest paid and received;
  • Service fees paid and received.

Subsequent to the issuance of that draft, over 1 400 pages of comments were received by the OECD. In the second OECD webcast (April 2, 2014), the OECD indicated that over 150 comment letters were received.

It was indicated during the webcast that the Working Party No. 6 tentatively elected to eliminate the transactional reporting component in the Country-by-country report for each entity. Transactional reporting would hence have been limited to the Local file.

However on a country-by-country basis, numerous metrics would have to be reported on a consolidated basis including the number of employees, tangible assets, capital and retained earnings.

Financial data would also be mandatory for each countries where the EMN group operates but on a consolidated basis instead of an entity-by-entity basis.

The OECD BEPS transfer pricing documentation rules

During the third OECD webcast which took place on May 26, 2014, it was confirmed that the OECD would indeed move forward with a “three tier approach” for transfer pricing documentation purposes:

  • The Country-by-country (CbC) reporting template;
  • The Master file; and
  • The Local file.

It was also indicated during the webcast that within the Working Party No. 6 there was “broad recognition” that:

“structured and careful implementation is necessary to guarantee

  • consistency in the approaches by governments
  • that the relevant information is available to governments for which it is relevant on a timely basis
  • that commercially sensitive information is treated confidentially
  • that the costs for both taxpayers and tax administrations are balanced
  • to secure that the information is used as intended.”

During the OECD fourth webcast which took place on September 16, 2014, official changes to the OECD transfer pricing documentation rules were finally announced.

Complete revision of Chapter V of the OECD Transfer Pricing Guidelines

A complete revision of Chapter V of the OECD Transfer Pricing Guidelines was offered. The new transfer pricing documentation rules can be found in the publication titled Guidance on Transfer Pricing Documentation and Country-by-Country Reporting.

The Master file must contain a high-level overview of the business whereas the Local file should present detailed information on each type of controlled transactions in a specific country. The Master file may be prepared on a group-wide basis or on a business line basis.

The Local file must document into much more detail each specific type of transactions where the parties do not deal at arm’s length, for each relevant country.

Some modifications were made to the Country-by-country reporting template. The transactional reporting component in the Country-by-country report for each entity was finally eliminated. In its final version, Country-by-country reporting covers the following items.

For each jurisdiction, data is required on:

  • Revenues (both controlled and at arm’s length);
  • Profit before income tax;
  • Income tax paid on a cash basis and on an accrual basis;
  • Stated capital;
  • Accumulated earnings
  • Numbers of employees; and
  • Tangible assets other than cash.

Data must be offered on a jurisdiction-wide basis instead of an entity-by-entity basis in a specific country.

For each entity of the MNE group, Country-by-country reporting also necessitates the country of organisation or incorporation (if different) and a statement of the main business activity of each entity.

The new transfer pricing rules and the determination of an arm’s length price

As a whole, it should be noted that these new transfer pricing documentation rules are part of the OECD comparability analysis. All the transfer pricing information contained in the Master file, Local file, and the Country-by-country report, will also facilitate the selection and application of a transfer pricing method by tax administrations around the world.

The transfer pricing documentation contained in the Master file will deepen the understanding of the economic circumstances of the parties and which also surround the controlled transaction.

In the case of the Local file, the transfer pricing documentation will significantly broaden the analysis of:

  • the characteristics of the property or service;
  • the functions performed by the parties taking into account the assets used and risks assumed;
  • the contractual terms; and
  • the business strategies used by the parties.

As for the Country-by-country report, it will provide tax administrations around the world with numerous metrics relevant to the 5 categories of factors of the OECD comparability analysis.

The next steps

An OECD implementation report is now expected in the coming months. Various options are on the table to insure an orderly implementation of these new transfer pricing documentation rules all around the world.

The OECD is considering options such as central filing, treaty exchanges mechanism and other technological solutions to ensure that the Master file and the Country-by-country report are properly distributed to the relevant tax administrations.

Guidance on the language to be used for completion of the Master file and the Country-by-country report is also forthcoming. English will likely be suggested.

A phase-in period is also on the table to allow MNEs all around the world sufficient time to implement the new transfer pricing documentation rules.


The new transfer pricing documentation rules of the BEPS initiative may significantly increase the transfer pricing documentation requirements of Canadian taxpayers in the near future.

There will be direct impacts on the application of the selected transfer pricing method to determine the arm’s length price of a controlled transaction between parties not dealing at arm’s length.

The information provided through the Master file, Local file, and the Model template of country-by-country reporting could create unnecessary transfer pricing controversies and double taxation for your company if misinterpreted by tax administrations.

To ensure that you are fully compliant with the Canadian documentation transfer pricing rules and get ready for the upcoming changes, it may be time to re‑examine the transfer pricing policies and procedures of your company.

Other business processes may also need to be reconsidered, revised or modified to ensure strong operational transfer pricing processes in the MNE group.

Robert Robillard, CPA, CGA, MBA, M.Sc. Econ.
Transfer Pricing Chief Economist, RBRT Inc.
514-742-8086; robert.robillard « at » rbrt.ca

RBRT Inc. is all about transfer pricing. We specialize in transfer pricing, tax treaties and other international tax matters. Our services include transfer pricing documentation (transfer pricing policies and procedures, BEPS and C-doc), transfer pricing dispute resolution, tax treaty matters including double tax relief, tax treaty-based returns and waivers, advanced pricing agreement (APA), value chain management and TP planning, transfer pricing training. 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. and the author are not responsible or liable for any error, omission or inaccuracy in such information. Readers should seek tax advice and tax counsel from RBRT Inc. as required.