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Highlights
INTERNATIONAL TRANSFER PRICING
Subsection 247(2) Versus Subsection 69(1) of the Income
Tax Act
François Vincent, Brian Bloom*
A "fair market value" price may not
always be the same as an "arm's length" price. For instance, where a
multinational enterprise ("MNE") pursues a market penetration strategy, the
transfer price charged between the MNE's head office and its local distribution
subsidiary will arguably be less than fair market value ("FMV"), even if it
otherwise respects the arm's length principle. Where a MNE sets international
transfer prices that respect the arm's length principle but that, arguably,
differ from FMV prices, the Canada Revenue Agency may be tempted to apply
subsection 69(1) of the Income Tax Act to adjust an arm's length price to one
that is a fair market value price. François Vincent and
Brian Bloom examine the relationship
between the pricing rules in subsections 247(2) and 69(1) of the Act, focusing
on whether it is an appropriate interpretation and application of the Act and of
the relevant income tax convention to base an assessment on subsection 69(1) of
the Act, where the transaction in question comes squarely within the ambit of
subsection 247(2) but is not adjusted pursuant to that provision such that
subsection 247(8) does not expressly preclude an assessment under subsection
69(1). As the authors note, subsection 69(1) should not be invoked in these
circumstances.
FOREIGN ISSUED DEBT
Maple Bonds: Certain Tax Consequences
Gabrielle Richards
Prior to the repeal of the "foreign
property" rules in the 2005 federal budget, Canadian institutional investors
such as pension funds and tax-sheltered plans were limited to holding no more
than 30% of their investments in the form
of debt of foreign entities. The removal of the foreign content limit has led to
the increase in the number of "maple bonds" issued in Canada. Maple bonds are
Canadian dollar denominated bonds issued by foreign issuers in Canada, generally
on a private placement basis. The foreign issuers include governments,
corporations (particularly banks) or supranational organizations. The issuers
are located primarily in Europe and the United States. Maple bonds are
attractive investments for Canadians due to the high credit ratings of the
issuers, the ability to diversify debt holdings internationally and the removal
of foreign exchange rate risks while maintaining competitive yields. The
attractiveness increases in the context of an appreciating Canadian currency.
For the foreign issuer, the Canadian bond market represents a new source of capital. Since such issuers have no need
for Canadian dollars, they would view
Canada as an arbitrage opportunity. Gabrielle Richards examines the income tax
considerations to Canadian resident holders of maple bonds.
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Board
Richard G. Tremblay
Editor-in-Chief
Osler, Hoskin & Harcourt LLP
Gabriel J. Hayos
KPMG LLP
Edward A. Heakes
Macleod Dixon
Michael J. Maikawa
PricewaterhouseCoopers LLP
C. Andrew McAskile
PricewaterhouseCoopers LLP
Joel A. Nitikman
Fraser Milner Casgrain LLP
Michael J. O’Keefe
Thorsteinssons
James M. Parks
Cassels Brock & Blackwell LLP
Shawn D. Porter
Deloitte & Touche LLP |