Transfer pricing taxation : Canadian perspective and Japanese perspective


University of British Columbia

Date Issued


Document Type



Master of Laws - LLM




For the last decades, transfer pricing has been one of the most important issues for both tax authorities and multinational corporations. On the one hand, tax authorities, despite their counter-measures, have not been able to cope with international tax avoidance or evasion using transfer pricing by multinational corporations owing to the deficiency of tax systems and the inability of tax administrations and this has resulted in a huge revenue loss to the coffers of their countries. On the other hand, while multinational corporations have been using transfer pricing as vehicles to maximize their overall after-tax profits as a group, they have been suffering intolerable administrative burdens and double taxation caused by enforcement of counter-measures by tax authorities. The basic principle for transfer pricing taxation legislation is the "arm's length principle", that transactions between parties that are not dealing at arm's length should be carried out for tax purposes under terms and at a price that one could reasonably have expected in similar circumstance had the parties been dealing at arm's length. This principle has been endorsed by the OECD, Canada, the U.S. and other developed countries, however, common specific guidelines under this principle have not been established among tax authorities and even multinational corporations themselves cannot always find an arm's length price acceptable to tax authorities. Since the OECD Committee on Fiscal Affairs issued the report "Transfer Pricing and Multinational Enterprises" in 1979, tax authorities, multinational corporations and tax practitioners have been making strenuous efforts to find a reasonable and practical transfer pricing taxation system and to coordinate its enforcement, all of which enables tax authorities to recover or keep their fair share of revenue and protect multinational corporations from double taxation. At present, the situation already shows some improvements due to efforts for the harmonization of guidelines among tax authorities, and due to multinational corporations' application of transfer pricing policy in a more self-restricted manner, and more appropriate advice from tax practitioners. However, there is still room for possible improvements. In Canada, there have been no guidelines other than the Income Tax Act which provides general principles of transfer pricing taxation, and actual enforcement has been based on the internal assessing guideline of Revenue Canada. But, on February 27, 1987 Revenue Canada issued Information Circular 87-2. Although an information circular does not carry any legal weight, it is expected that the circular will eliminate taxpayers' uncertainty and augment tax compliance. On the other hand, in Japan, despite its export-oriented economy, the Japanese tax authorities have not been keeping pace with the internationalization of economic activities. Having introduced anti-tax haven legislation in 1978, Japan in 1986 introduced transfer pricing taxation legislation. Although fairly concrete pricing methods have been written into legislation in order to permit the reasonable enforcement of the new system, there is much to be learned from the experience of the "advanced" countries. Above all, Canada's experience could be useful, as the provisions of the new Japanese transfer pricing taxation legislation are similar to those of the Canadian Income Tax Act and both countries have several similarities in terms of their relationship with the U.S. In this thesis, after reviewing the background to these problems, I will discuss the Canadian transfer pricing taxation system and its enforcement by looking at each type of intra-group transaction and the corresponding adjustment and mutual agreement procedure system. Then I will compare the Canadian approach and Japanese approach. Possible improvements will be dealt with in the conclusion. Since there has been little jurisprudence in this area, the discussions are primarily based on the tax authorities' perspectives and the OECD reports.


Transfer pricing -- Taxation -- Law and legislation -- Canada; Transfer pricing -- Taxation -- Law and legislation -- Japan

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