Tax Treaty Case Law around the Globe 2014

S. 375Chapter 38 Canada: Limitation Period for Secondary Transfer Pricing Adjustments

David G. Duff

38.1. Introduction

Where a taxpayer is subject to a transfer pricing adjustment, this adjustment may lead to so-called "secondary adjustments" resulting from the recharacterization of payments subject to the primary adjustment as dividends or royalties that are subject to non-resident withholding tax. In Canada, for example, transfer pricing adjustments can result in a shareholder benefit that is deemed to be a dividend subject to withholding tax. Where the Canadian resident that confers this benefit does not withhold tax on the deemed dividend, domestic legislation also makes the Canadian resident liable to pay as a tax on behalf of the non-resident "the whole of the amount that should have been deducted or withheld" and authorizes the Canadian resident "to deduct or withhold from any amount paid or credited ... to the non-resident person or otherwise recover from the non-resident person any amount paid ... as tax .. .".

Although the Commentary on Article 9 of the OECD Model Convention (2010) contemplates these secondary transfer pricing adjustments, the Convention does not address these adju...