Domestic Avenues of Relief: 2026 Transfer Pricing Guide – Part 3

A Practical Guide to Canadian Transfer Pricing examines the full transfer pricing lifecycle, from pricing and documentation through to audits, disputes, and cross‑border relief.

Explore other chapters in the guide:

• Chapter 1: Best Practices in Determining a Transfer Price
• Chapter 2: The Transfer Pricing Audit
• Chapter 4: The Competent Authority Process
   

Objecting to a Transfer Pricing Reassessment

CRA Appeals

When a taxpayer is reassessed under section 247, the taxpayer should file a notice of objection with the CRA. Upon receipt of the notice of objection, an Appeals Officer with the CRA Appeals Division will review the objection.

The CRA Appeals Division is independent of the Audit Division, the branch of the CRA which would have conducted the transfer pricing audit. The separation between the two divisions is to allow for a notice of objection to be reviewed on a “fair, impartial, and independent” basis.^[1] In essence, filing a notice of objection requires the CRA to undertake a second, independent review of the reassessment issued by audit.

The CRA Appeals Officer can vacate the reassessment (i.e., agree with the taxpayer), confirm the reassessment (i.e., agree with the CRA auditor), or vary the reassessment (i.e., make adjustments to reduce the transfer pricing adjustment). If the CRA Appeals Officer confirms or varies the reassessment, the taxpayer may file a notice of appeal within 90 days of the confirmation or varied reassessment, which commences the dispute resolution process with the TCC. Alternatively, a taxpayer can bypass the CRA Appeals process and go straight to the TCC by filing a notice of appeal in the TCC 90 days after filing the notice of objection.

Protecting Taxpayer Rights

Once a taxpayer receives a notice of reassessment, that taxpayer must file a notice of objection within 90 days.^[2] Failure to do so can result in no longer having any statutory right of appeal. We recommend that a taxpayer always file a notice of objection to protect their rights.

Large corporations, which are typically the subject of transfer pricing audits and reassessments, must adhere to the special large corporation objection rules set out in the Act. A “large corporation” is defined in the Act as a corporation, or group of related corporations, which has over $10 million in taxable capital employed in Canada in the taxation year under dispute.^[3] The CRA will typically inform a taxpayer if it considers the taxpayer to be a large corporation on the notice of reassessment.

For a large corporation to make a valid notice of objection, the large corporation must:

• Reasonably describe each issue to be decided;
• Specify, in respect of each issue, the relief sought (expressed a numerical amount); and,
• Provide the facts and reasons relied on by the corporation in respect of each issue.^[4]

In essence, a large corporation must state the facts, reasons, and amount of relief sought for each issue it is objecting to. It is best practice that the large corporation state each section of the Act it intends to rely on for its reasons in the notice of objection. Failure to raise an issue in the notice of objection or any subsequent written communication with CRA Appeals will prevent the large corporation from raising the issue subsequently if the matter is litigated before the TCC. As such, it is recommended that a large corporation consult legal counsel before submitting a notice of objection to the CRA, so as to fully preserve its appeal rights.

Finally, for large corporations, the CRA can collect half of the disputed tax, interest, and penalties immediately, irrespective of whether a notice of objection is filed.^[5] If the large corporation is successful in the objections process, or later on with the TCC, this amount will be refunded to the large corporation along with overpayment interest.

The CRA may accept security (e.g., a letter of credit) for the disputed tax, interest, and penalties.^[6]

Strategic Considerations: Park or Pursue?

Domestic vs Treaty-Based Relief

Once a notice of objection is filed, the next strategic decision is whether to park or pursue the domestic avenue of relief in favour of relief avenues available under Tax Treaties that Canada has entered into with other jurisdictions.

Treaty-based relief involves the taxpayer, along with the other affected members of its corporate family, requesting for the assistance of tax authorities acting as “Competent Authorities” under the “Mutual Agreement Procedure” provisions of a tax treaty (e.g., the CRA in Canada, the IRS in the United States). The Mutual Agreement Procedure (“MAP”) can potentially be a cheaper and more expedient relief process when compared to commencing an appeal with the TCC.

While engaged in the MAP, the taxpayer’s notice of objection will be held in abeyance, pending the resolution of the negotiation between the competent authorities.

Strategic Factors to Consider

The decision to pursue domestic or treaty-based relief will depend on a number of strategic factors:

• Is there a tax treaty with the non-resident country?
  • While Canada has tax treaties with many countries, it does not have a tax treaty with every country. Where there is no tax treaty, domestic avenues of relief may be the only recourse available, as there is no way for any bilateral negotiation to provide relief from double taxation.
• Is the CRA audit’s position unreasonable?
  • Where the CRA audit position is unreasonable (for example, trying to attribute all system profits to Canada), and the taxpayer assesses a high likelihood of success in court, it can often be best to pursue domestic avenues of relief, and in some cases, bypass the CRA Appeals process by going directly to TCC. It can sometimes be futile to pursue treaty-based avenues for relief and have the two countries negotiate based on unreasonable transfer pricing adjustments.
  • Where the CRA audit position is within a reasonable range, it may be more advantageous to pursue treaty-based avenues of relief to reduce double taxation, as income will have already been taxed in the foreign jurisdiction.
• Are transfer pricing penalties involved?
  • The CRA can impose transfer pricing penalties when it determines a taxpayer did not use reasonable efforts to determine arm’s length prices. Transfer pricing penalties are not generally dealt with under the MAP. Domestic avenues of relief are the only recourse to reverse transfer pricing penalties, which are usually based on whether there is (i) reasonable contemporaneous documentation and (ii) reasonable and reproducible analyses provided to the CRA.
• Other strategic factors to consider
  • Even where there is a tax treaty in place, it may not be in the strategic best interest of the taxpayer to pursue treaty-based avenues of relief:
    • Let sleeping dogs lie: A taxpayer may not want to alert the foreign tax authority about a transfer pricing issue because it may start an audit in the foreign country or increase scrutiny on the non-resident non-arm’s length party who may have other more significant tax issues.
    • No benefit to cash taxes. Where the non-arm’s length party is in a loss position, pursuing treaty-based avenues of relief may not improve the cash tax situation. The increase in the transfer pricing adjustment to Canada, for example, may result in additional outlays of cash taxes, but there may not be a corresponding decrease in cash taxes in the foreign jurisdiction if the non-arm’s length entity is already in a loss position.
    • Little expertise or resources by the foreign competent authority: If the foreign competent authority has little expertise or resources in dealing with transfer pricing disputes and negotiating treaty-based relief, a taxpayer is likely not going to get a good result. Where a foreign competent authority has experience and resources in dealing with transfer pricing related treaty-based relief, it is easier for a taxpayer to equip that competent authority with ammunition to reverse or reduce the adjustments.
• Timelines, Costs and Risks
  • Both domestic and treaty-based avenues take time, have costs, and have risks. The CRA appeals process generally takes 2 to 3 years. The TCC process generally takes 5 to 7 years, requiring transfer pricing experts, extensive documentary and oral discoveries, and a hearing that may span weeks or months. One of the largest risks is that people who were involved in the transaction are no longer with the taxpayer many years later. The legal costs and disbursements in the Cameco Corporation transfer pricing case were about $57 million, with costs awarded to Cameco for only about $10 million.^[7] The pleadings filed in TCC are publicly available, and absent a confidentiality order, anything provided at the TCC hearing is publicly available.
  • The MAP process can take 2 to 3 years. According to the CRA’s Mutual Agreement Procedure Program Report 2024,^[8] Canadian-initiated transfer pricing cases took 27.79 months on average. As negotiations in the MAP process are only between the competent authorities and thus very opaque, taxpayers are often left in the dark without being at the table. Taxpayers are required to either accept or reject the MAP agreement, without any input on its terms and conditions. Even after a MAP agreement is successfully concluded, there may still be issues to resolve with the CRA that can take additional time, including for example (i) deductibility issues, (ii) interest relief, (iii) foreign tax credits or (iv) additional penalties that the CRA may choose to impose.
  • In some tax treaties, there is a mandatory arbitration provision (e.g. United States and United Kingdom) that commences once a file is accepted into the MAP, helping to reduce the timelines.

There is no one size fits all answer to the question of whether or not to park or pursue an objection. We recommend that a taxpayer consult legal counsel with experience in resolving transfer pricing disputes to assess each taxpayer’s unique circumstances and recommend the best possible dispute resolution process for the circumstance.

Tax Litigation Considerations

Transfer pricing cases are highly technical and fact specific. As previously mentioned, the TCC process generally takes 5 to 7 years, requiring transfer pricing experts, extensive documentary and oral discoveries, and a hearing that may span weeks or months.

However, various general legal principles have emerged in the last 20 year’s transfer pricing jurisprudence before the TCC, the FCA, and the Supreme Court of Canada (“SCC”). These principles will invariably guide any future transfer pricing disputes before the TCC.

All Circumstances will be taken into account

A court is to take into account all transactions, characteristics and circumstances that are relevant (including economically relevant) in determining whether the terms and conditions of the transactions or series in question differ from the terms and conditions to which arm's length parties would have agreed.

The SCC’s decision in Canada v. GlaxoSmithKline^[9] is helpful in illustrating this principle. In GlaxoSmithKline, the issue before the Court was whether the price paid by Glaxo Canada for the chemical ingredient ranitidine was inflated and should therefore be limited in accordance with the Act’s transfer pricing rules.

Glaxo Canada was a party to two transactions: a license agreement with Glaxo UK (its’ parent), and a supply agreement with Glaxo Switzerland (a corporate family member), under which ranitidine was obtained. Glaxo Canada was required to be a party to both arrangements in order to obtain the ranitidine itself, and secure the license required to market the product in Canada.

The SCC held that the license agreement could not be ignored in determining the reasonable amount paid for ranitidine, for transfer pricing purposes. Ruling in favour of Glaxo Canada, the SCC confirmed that considering the license and supply agreements together offered a more realistic picture of Glaxo Canada’s profits. Thus, the prices paid by Glaxo Canada to Glaxo Switzerland were reasonable in the circumstances, taking into account all relevant agreements which impacted the price.

The Evolving Role of the OECD Guidelines

In 2012, the SCC in Canada v GlaxoSmithKline made it explicitly clear that the OECD Transfer Pricing Guidelines are not law in Canada.

However, the new Canadian transfer pricing legislation now explicitly refers to the OECD Guidelines, overturning the SCC’s decision.

Transfer pricing is an Art not a science

Canadian courts have routinely confirmed that transfer pricing is “not an exact science” and that where the price of a transaction is determined to be within a “reasonable range” of what would have been undertaken by arm’s-length parties, then the requirements of the Act’s transfer pricing regime are met. Thus, some leeway is required, and where a transfer price is within a reasonable range, no adjustment should be made.

Refuting the CRA’s Assumptions of Fact

The CRA’s transfer pricing reassessment will be predicated upon a combination of material facts and assumptions, arrived at through the audit process, which led to the transfer pricing adjustment. The Reply to the taxpayer’s notice of appeal will set out an exhaustive list of facts and assumptions which the CRA has relied on. The key to achieving success in a transfer pricing dispute is to refute the CRA’s stated assumptions of fact, thereby casting doubt on the correctness of the transfer pricing reassessment. The taxpayer has the onus of proof of refuting or “demolishing” the CRA’s assumptions of fact.

The Importance of Fact and Expert Witnesses

Due to the inherently fact-specific nature of transfer pricing disputes, fact witnesses and expert witnesses play a critical role in achieving success in a transfer pricing dispute.

Fact Witnesses

A fact witness is not an independent party to a proceeding but is called in order to give testimony only on facts of which the witness has personal knowledge. As such, an ordinary fact witness, unlike an expert witness, may not give an opinion on a matter that requires specialized knowledge.

In the transfer pricing context, fact witnesses are typically key personnel of the taxpayer who have personal knowledge and insight into the transfer pricing transactions. The day-to-day knowledge of the key personnel will allow them to speak towards certain nuances in the transactions which could assist in refuting the CRA’s assumptions of fact.

As a fact witness is critical in transfer pricing disputes, there are a few best practices to consider:

• Witness preparation is key.
• Fact witnesses should only be called where it is necessary to clarify contentious factual points or in order to refute the CRA’s assumption of fact.
• The purpose of a fact witness is to put forward a credible record before the TCC.
• Given the time it takes to go through the tax dispute process, taxpayers should consider documenting who were the key individuals in a transaction and ensure they have the contact information for those individuals in case they are needed as witnesses.

Expert Witnesses

Due to the inherently fact-specific nature of transfer pricing disputes, experts play a critical role in rebuffing the CRA`s assumptions which led to the disputed transfer pricing adjustment. Most transfer pricing disputes will involve both the taxpayer and the CRA utilizing expert witnesses in order to establish that their interpretation of the impugned transaction is the correct one.

As a general rule, expert evidence is only admissible where it is relevant and necessary to assist the court in making its determination. While the use of expert witnesses may be harder to justify in other tax disputes, transfer pricing cases are an area where experts are routinely engaged in order to assist the court in making its determination.

Expert witnesses are utilized in order to give their opinion on a subject that requires specialized knowledge. Expert witnesses are not permitted to speak to give their opinion on the law or speak to the veracity of the facts at issue before the court.

Importantly, unlike for fact witnesses, expert witnesses are required to be impartial and may not advocate for the party that retained them. Expert witnesses are required to sign an attestation with the TCC, as prescribed by the Tax Court of Canada Rules (General Procedure)^[10] (the “TCC Rules”) agreeing to provide an overriding duty to assist the Court impartially and that this duty overrides their duty to any party to the proceeding.^[11]

The TCC has routinely clarified that it is the duty of an expert witness to “give their honest opinion, period.”^[12] Courts do not look kindly to where experts assume the mantle of advocate, and where it is clear that an expert witness begins to advocate for the party that retained them, the value of their testimony is severely reduced.

The TCC Rules specify that an expert witness may only testify if a written summary (e.g., an expert report) is prepared and given to the other party prior to the hearing. In the TCC, the expert report must be completed and served upon the opposing party 90 days before the hearing. The TCC Rules set out the requirements of what must be contained in the expert report, which are as follows:

• A statement of the issues addressed;
• A description of the qualifications of the expert on the issues addressed;
• The expert’s current curriculum vitae attached as a schedule;
• The facts and assumptions on which the opinions in the report are based;
• A summary of the opinions expressed;
• In the case of a report that is provided in response to another expert’s report, an indication of the points of agreement and disagreement with the other expert’s opinions;
• The reasons for each opinion expressed;
• Any literature or other materials specifically relied on in support of the opinions;
• A summary of the methodology used, including any examinations, tests, or other investigations on which the expert has relied, including details of the qualifications of the person who carried them out, and whether a representative of any other party was present; and,
• Any caveats or qualifications necessary to render the report complete and accurate, including those relating to any insufficiency of data or research and an indication of any matters that fall outside the expert’s field of expertise.

Failure to meet the above requires may result in an expert report not being accepted by the TCC.

At the hearing, the expert witness will have an opportunity to opine on the report prepared as well as any other issue which may arise that relates directly to the expert’s area of expertise. In essence, the expert witness will have a chance to emphasize the salient points contained in the report and verbally explain their position.

The opposing side will have an opportunity to cross-examine the expert witness, and in doing so, attempt to attack  the expert’s report. For example, an opposing party may challenge the expert witness’s qualifications, which are valid grounds to disqualify an otherwise expert witness. In the transfer pricing context, challenging an expert’s qualifications is rare. Instead, the usual strategy is to emphasize the weakness of the export report’s methodology, so that the Court will favour the testimony of the cross-examining side’s own expert witness.

Managing double taxation or considering treaty‑based relief alongside domestic steps?

Understand when MAP, ACAP, APAs, and arbitration may be available and how the process works in practice  — see Chapter 4: The Competent Authority Process.

^[1] RC4067 – Protocol Between the Appeals Branch and the Compliance Programs Branch.

^[2] Subsection 165(1).

^[3] Subsection 225.1(8).

^[4] Subsection 165(1.11).

^[5] Subsection 225.1(7).

^[6] Subsection 220(4).

^[7] 2019 TCC 92.

^[8] Mutual Agreement Procedure – Program Report – 2024 (accessible: online).

^[9] 2012 SCC 52.

^[10] Tax Court of Canada Rules (General Procedure), SOR/90-688a.

^[11] Form 145(2).

^[12] Richards v Minister of National Revenue, 86 DTC 1475 at 1476, 1986 CanLII 7477.