Federal Court of Canada Rules in Favor of taxpayer in transfer pricing tax Case

Canadian Federal Court has made a ruling as per which  the Canadian Revenue Agency (CRA) may not be able to hold any more face-to-face interviews with persons connected directly with a multinational with regard to its transfer pricing dealings.

Cameco Corporation refused to provide 25 of its personnel for interviews by the CRA with reference to the transfer payments made by the company in its 2010, 2011, and 2012 taxation years.

The court made the decision in favor of the company after it observed that the company made all the necessary efforts to provide the Ministry of National Revenue with the opportunity to examine and audit its books of accounts, documents and inspect its property but was not able to find any ‘spot soft’ of Cameco Corporation.

The Court also disapproved the Ministry’s argument of giving the right to conduct in-person interviews and making it a part of the process of inspection and audit, therefore allowing the Ministry to conduct in-person oral interviews of taxpayers in addition to examining and inspecting their records, books, documents and property.

The Court also stated that, if the position of the Minister is accepted, then the CRA can conduct oral interviews of as many representatives of the company as per their requirement without any restrictions or limits. Oral interviews being taken at the audit stage would undermine the importance of procedural safeguards that are provided at the appeal stage. Furthermore, the Ministry can also use an isolated statement of an employee which the taxpayer would be forced to refute at trial stage.

The information collected from all these in-person interviews became part of the Minister's analysis of Cameco’s economic and functional operations and also led to a reassessment of the company’s 2003 taxation year.