TRANSFER PRICING AND BRANCHES - BDO Canada
TRANSFER PRICING AND BRANCHES - BDO Canada
TRANSFER PRICING AND BRANCHES - BDO Canada
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WWW.<strong>BDO</strong>.CA<br />
<strong>TRANSFER</strong> <strong>PRICING</strong><br />
<strong>AND</strong> <strong>BRANCHES</strong><br />
GLOBAL <strong>TRANSFER</strong> <strong>PRICING</strong> & DISPUTE RESOLUTION SERVICES<br />
NEWSFLASH – ATTRIBUTION OF PROFITS TO <strong>BRANCHES</strong><br />
Transfer pricing provides the framework<br />
When faced with having to determine the profits attributable to a permanent establishment<br />
(i.e., a “Branch”), the transfer pricing rules and arm’s length principle found in Section 247 of the<br />
Income Tax Act (the “Act”) and the OECD Transfer Pricing Guidelines should be employed.<br />
Arm’s length principle<br />
Article VII to the Fifth Protocol of the Convention between <strong>Canada</strong> and the United States of America<br />
with Respect to Taxes on Income and on Capital (the “Convention”) states that the profits attributable<br />
to a permanent establishment are those which an enterprise “might be expected to make if it were<br />
a distinct and separate person engaged in the same or similar activities under the same or similar<br />
conditions and dealing wholly independently with the resident and with any other person related to<br />
the resident.”<br />
Annex B, paragraph 9 of the Convention goes on to state: “The principles of the OECD Transfer<br />
Pricing Guidelines shall apply for purposes of determining the profits attributable to a permanent<br />
establishment…[Any] of the methods described therein as acceptable methods for determining an<br />
arm’s length result may be used to determine the income of a permanent establishment.”<br />
Paragraph 5 of Information Circular 87-2R International Transfer Pricing (“IC 87-2R”) states, “Section<br />
247 and this circular relate specifically to transactions or arrangements between a taxpayer and a<br />
non resident person with whom the taxpayer does not deal at arm’s length. However, many of the<br />
principles and methods outlined in this circular may also provide taxpayers with general guidance on<br />
the attribution of income between a permanent establishment and other parts of the same entity.”<br />
A transfer pricing analysis should be performed to support and document the determination of profits<br />
attributable to a Branch.<br />
<strong>BDO</strong>’S <strong>TRANSFER</strong> <strong>PRICING</strong><br />
CONTACT<br />
Dan McGeown<br />
416 369 3127<br />
dmcgeown@bdo.ca<br />
OUR FIRM’S <strong>TRANSFER</strong><br />
<strong>PRICING</strong> TEAM<br />
Please see the attached page<br />
highlighting the members of<br />
<strong>BDO</strong> <strong>Canada</strong>’s team of transfer<br />
pricing professionals.<br />
Does Section 247 always apply?<br />
Subsection 247(2) of the Act notes that Section 247 applies when the parties involved in the<br />
transaction include “a taxpayer or a partnership and a nonresident person with whom the taxpayer<br />
or the partnership, or a member of the partnership, does not deal at arm’s length (or a partnership<br />
of which the non-resident person is a member).”<br />
Thus, if a Branch only transacts with other parts of the same entity, Section 247 does not apply:<br />
the penalty may not be imposed and there is no requirement to comply with Subsection 247(4) of<br />
the Act to prepare contemporaneous documentation. Section 247 will apply when the Branch has<br />
transactions with a separate entity.
WWW.<strong>BDO</strong>.CA<br />
GLOBAL <strong>TRANSFER</strong> <strong>PRICING</strong> & DISPUTE RESOLUTION SERVICES<br />
OUR TEAM: CANADA<br />
DANIEL McGEOWN, BAS, CGA<br />
Associate<br />
Email: dmcgeown@bdo.ca<br />
Direct line: 416 369 3127<br />
THERESE GARCIA, HBA(ECON), CMA<br />
Senior Manager<br />
Email: tgarcia@bdo.ca<br />
Direct line: 416 369 3118<br />
ALISON WALDENBERG, MLS<br />
Manager<br />
Email: awaldenberg@bdo.ca<br />
Direct line: 416 369 6040<br />
PAVLO SUGOLOV, MA(ECON)<br />
Manager<br />
Email: psugolov@bdo.ca<br />
Direct line: 416 815 3007<br />
YESSELI GALLARDO, MIB<br />
Manager<br />
Email: ygallardo@bdo.ca<br />
Direct line: 416 369 6049<br />
CHRIS MANGROBANG, MA (IPED)<br />
Senior Consultant<br />
Email: cmangrobang@bdo.ca<br />
Direct line: 416 865 0200<br />
Ext. 3427<br />
RANA AHMAD, MSC<br />
Senior Consultant<br />
Email: rahmad@bdo.ca<br />
Direct line: 416 865 0200<br />
Ext. 3255<br />
RAOUL MENDONCA, MBA<br />
Junior Consultant<br />
Email: rmendonca@bdo.ca<br />
Direct line: 416 865 0200<br />
Ext. 3446<br />
MELISSA YONG, MA (ECON)<br />
Junior Consultant<br />
Email: myong@bdo.ca<br />
Direct line: 416 865 0200<br />
Ext. 3447<br />
STEPHANIE WILKINSON<br />
Junior Administrative Assistant<br />
Email: swilkinson@bdo.ca<br />
Direct line: 416 865 0200<br />
Ext. 3243<br />
<strong>BDO</strong> <strong>Canada</strong> LLP, a Canadian limited liability partnership, is a member of <strong>BDO</strong> International Limited, a UK company limited by guarantee, and forms part<br />
of the international <strong>BDO</strong> network of independent member firms. <strong>BDO</strong> is the brand name for the <strong>BDO</strong> network and for each of the <strong>BDO</strong> Member Firms.
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