Canada: Country-by-country reporting, transfer pricing proposals in 2016 federal budget

Canada: Country-by-country reporting in federal budget

Canada’s federal budget for 2016 as presented by the Finance Minister reflects the recommendations from the OECD’s base erosion and profit shifting (BEPS) project—including changes to the OECD’s Transfer Pricing Guidelines for Multination Enterprises and Tax Administrations, to incorporate new standards for transfer pricing documentation.

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The BEPS recommendations reflected in Canada’s 2016 budget include measures to address treaty abuse (or “treaty shopping”), the automatic exchange of tax rulings, and a minimum standard for country-by-country reporting. 

Country-by-country reporting

Canada’s budget proposes to implement country-by-country reporting, and will apply only to multinational entities (MNEs) with a total annual consolidated group revenue of €750 million or more. When an MNE has an ultimate parent entity that is a resident of Canada (or a Canadian resident subsidiary), it will be required to file a country-by-country report with the Canada Revenue Agency without one year of the end of the fiscal year to which the report relates. The first exchanges of country-by-country reports are expected to occur by June 2018.

Draft legislative proposals are expected to be released for comment in the coming months.

Transfer pricing guidance

The budget provides that the clarifications to the OECD’s Transfer Pricing Guidelines generally support the CRA’s current interpretation and application of the arm’s length principle.  However, two other revisions are not complete, and the budget provides that the CRA will not be adjusting its administrative practices at this time concerning:

  • A threshold for the proposed simplified approach to low value-adding services
  • The definition of risk-free and risk-adjusted returns for minimally functional entities (or “cash boxes”)

 

Read a March 2016 report [PDF 200 KB] prepared by the KPMG member firm in Canada: 2016 Federal Budget Highlights

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