{"id":1034,"date":"2014-01-27T17:24:13","date_gmt":"2014-01-27T17:24:13","guid":{"rendered":"https:\/\/thor.ca\/\/blog\/?p=1034"},"modified":"2014-01-27T17:24:27","modified_gmt":"2014-01-27T17:24:27","slug":"tcc-upholds-transfer-pricing-adjustment-to-sale-price-of-trade-receivables","status":"publish","type":"post","link":"https:\/\/www.thor.ca\/blog\/2014\/01\/tcc-upholds-transfer-pricing-adjustment-to-sale-price-of-trade-receivables\/","title":{"rendered":"TCC upholds transfer pricing adjustment to sale price of trade receivables"},"content":{"rendered":"

In Mckesson Canada Corporation v. The Queen<\/a><\/i>, 2013 TCC 404, the Canadian company in the group (Canco) sold its trade receivables to a Luxembourg company in the group (Luxco) at a discount of 2.206% (from their face amount).\u00a0 In an 87-page judgment, the Tax Court of Canada (TCC) held that an arm\u2019s length range for a discount rate in the circumstances was between 0.959% and 1.17%.\u00a0 The CRA had reassessed Canco using a discount rate of 1.013%, which was upheld as being within this arm\u2019s length range.\u00a0 The decision is highly fact-based, but some interesting points may be observed.<\/p>\n

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  1. It seems the case landed in the TCC \u2013 and had not been resolved at the inter-governmental competent authority level (as is often the case in transfer pricing) \u2013 because Luxco did not pay significant taxes in Luxembourg (paragraph 365).\u00a0 Accordingly, the only substantive tax in issue was Canadian tax.<\/li>\n
  2. \u00a0The Tax Court judge (Judge) clearly took the Supreme Court of Canada\u2019s direction Canada v. GlaxoSmithKline Inc<\/i>., 2012 SCC 52 at paragraph 61 to heart: namely, \u201cAs long as a transfer price is within what the court<\/i> determines is a reasonable range, the requirements of the section should be satisfied\u2026and the Tax Court judge<\/i> will be required to exercise his best informed judgment in establishing a satisfactory arm\u2019s length price\u201d (paragraph 120).<\/li>\n
  3. \u00a0Naturally, opinions may differ as to whether the Judge\u2019s factual conclusions in this case were right or wrong.\u00a0 One thing seems clear however.\u00a0 A Tax Court judge will apply a healthy dose of common sense in these cases.\u00a0 For instance, the Judge could not understand how, from \u201ca common sense point of view\u201d, the parties could assign a forward-looking credit risk to the trade receivables that was \u201cmany, many, many times higher\u201d than the multi-year historic performance of those receivables (paragraph 299).\u00a0 Similarly, the Judge found it \u201ccompletely unacceptable, unreasonable, [and] unsupported on the evidence\u201d that Canco, as an arm\u2019s length seller, would agree to essentially compensate Luxco, as an arm\u2019s length buyer, for Luxco\u2019s own<\/i> financing costs (paragraph 346).\u00a0 To paraphrase an old line: If the transfer price looks too good to be true, it probably is.<\/li>\n
  4. \u00a0Finally, the TCC examined an interesting procedural point concerning the secondary withholding tax (WHT) assessment of Canco.\u00a0 The WHT applied to the value of the benefit that Canco conferred on Luxco, which had arisen because Canco accepted too high of a discount on its trade receivables.\u00a0 The TCC held that this WHT was not the kind of income tax to which the 5-year time limitation in Article 9 of the Canada-Luxembourg treaty applied for transfer pricing reassessments (paragraphs 391-392).\u00a0 Accordingly, the CRA was not time-barred when it issued the WHT assessment outside the 5-year period.<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

    In Mckesson Canada Corporation v. The Queen<\/a><\/i>, 2013 TCC 404, the Canadian company in the group (Canco) sold its trade receivables to a Luxembourg company in the group (Luxco) at a discount of 2.206% (from their face amount).\u00a0 In an…<\/p>\n","protected":false},"author":11,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[],"class_list":["post-1034","post","type-post","status-publish","format-standard","hentry","category-corporate-tax"],"_links":{"self":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/1034","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/comments?post=1034"}],"version-history":[{"count":0,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/1034\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/media?parent=1034"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/categories?post=1034"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/tags?post=1034"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}