CRA says there is no limitation period for the 10% transfer pricing penalty

The CRA has the power to make a transfer pricing adjustment to any amount for a taxation year under s. 247(2) in respect of a non-arm’s length cross-border transaction. A taxpayer is also liable to a 10% penalty under s. 247(3), which penalty is determined with reference to the taxpayer’s transfer pricing capital adjustment and transfer pricing income adjustment for the year. These two latter terms are defined in s. 247(1) and refer an adjustment made under s. 247(2). In 2016-0631631I7, the CRA reached the following conclusions in relation to these provisions:

1. An Adjustment: The CRA can make a transfer pricing adjustment under s. 247(2) at any time, even though the relevant transaction and the relevant amount arose in a year that is statute-barred for reassessment of tax under s. 152(4). This transfer pricing adjustment can then be used to reassess tax in an open year. The example given was a downward transfer pricing adjustment to the ACB of property acquired in a statute-barred year. The adjusted ACB could then be used to reassess tax on a (higher) capital gain realized in the open year (see page 7).

2.The 10% Penalty: The CRA further said that although tax cannot be reassessed for a statute-barred year, the 10% transfer pricing penalty under s. 247(3) can be. In other words, in the CRA’s view, an initial 10% transfer pricing penalty can be imposed at any time under s. 247(3) (see pages 6 and 7). In the example considered, the reduction to the ACB of the property acquired in the statute-barred year would be a transfer pricing capital adjustment (TPCA) in that statute-barred year. This TPCA would then be relevant for purposes of potentially imposing the 10% transfer pricing penalty for that statute-barred year under s. 247(3) (see page 6).