Canadian guidance addresses use of multiple year data in transfer pricing

The Canadian Revenue Agency (CRA) has issued guidance on the use of multiple year data in determining the arm’s length price in transfer pricing cases. The guidance also address the use of statistical tools in transfer pricing.

The guidance, TPM-16, dated January 29, states that taxpayers should not average results of comparable transactions over multiple years to substantiate transfer prices in an audit. Transfer prices for a given year should be determined based on the results of a single year of data from each of the comparable transactions, the CRA said.

Multiple years of data can be useful to select, reject, or determine the degree of comparability of potentially comparable transactions, the CRA states. Multiple year averages may also play a role in advance pricing agreements.  The guidance elaborates on Information Circular IC87-2R.

The CRA also advises that it is inappropriate to use descriptive or inferential statistical tools to determine whether a potential comparable transaction is comparable or not. “There is no numerical value or scale for comparability; therefore there are no direct numerical indicators of comparability,” the CRA said.

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