On September 26, 2018, the Tax Court of Canada released its long-awaited transfer pricing decision in Cameco Corporation v. The Queen.
The case involved the application of Canada’s transfer pricing rules in the Income Tax Act (Canada), which govern transactions between Canadian residents and non-arm’s-length non-residents of Canada (e.g., a Canadian subsidiary and a foreign parent company or vice versa).
In this case, the Canadian taxpayer, Cameco Corporation (one of the world’s largest uranium producers) had entered into long-term contracts to sell uranium to its Swiss subsidiary, and also guaranteed long-term contracts entered into by its Swiss subsidiary to purchase uranium from a third party. Following the entering into of these supply contracts, the price of uranium rose significantly. The result was that profits from sales by the Swiss subsidiary to customers outside of Canada were realized largely in Switzerland rather than Canada.
The Canada Revenue Agency (CRA) re-assessed Cameco essentially to attribute to it the profits that had been earned by its Swiss subsidiary, arguing that the foregoing purchase and sales contracts involving the Swiss subsidiary:
- were a “sham” that should be looked through, and
- did not meet the arm’s-length standard contained in Canada’s transfer pricing rules, so as to allow the CRA to either completely ignore the contracts or to revise their terms in accordance with what arm’s-length parties would have agreed to.
