• Service: Tax, International Corporate Tax, Global Transfer Pricing Services, Global Compliance Management Services
  • Type: Regulatory update
  • Date: 1/21/2014

Canada - Arm’s length discount in accounts receivable factoring arrangement 

January 21:  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 concerning what constitutes a reasonable discount rate in a non-arm’s length accounts receivable factoring arrangement. McKesson Canada Corp. v. The Queen 2013 TCC 404 (20 December 2013).

The Tax Court of Canada upheld a $27 million* increase in the Canadian taxpayer’s income for its 2003 tax year. Read the court’s decision.

KPMG observation

Although the taxpayer appealed the decision to the Federal Court of Appeal, multinationals will be interested in the approach the Tax Court of Canada used in determining what it considers an acceptable arm’s length range for an accounts receivable factoring discount. 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.

Read a January 2014 report prepared by the KPMG member firm in Canada: Tax Court Lowers Canco’s AR Factoring Transfer Price

*$=Canada dollar

Contact a tax professional with KPMG's Global Transfer Pricing Services.

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