McKesson Canada: Is the Canadian Statutory Transfer Pricing Adjustment “Formula” in Need of an Adjustment?

Canadian multinational companies may want to note the implications of a recent transfer pricing case in which the Tax Court of Canada held for the tax authority on what constitutes a reasonable discount rate in a non-arm’s length accounts receivable factoring arrangement. Of particular interest is the approach the Court used in determining what it considers an acceptable arm’s length range for an accounts receivable factoring discount and the Court’s views on when “recharacterization” of the transactions might be used by tax authorities. Also, the decision to apply Canadian withholding tax on the secondary adjustment may be important for both Canadian taxpayers and non-residents engaged in cross-border controlled transactions.