The Mckesson Canada Decision: Further Guidance on the Transfer Pricing of Debt Factoring Arrangements
Transfer Pricing International Journal 2014, Forthcoming
5 Pages Posted: 17 Sep 2014
Date Written: March 1, 2014
Abstract
The appeal of McKesson Canada Corporation (McKesson Canada) has been heard by the Tax Court of Canada which published its decision on 13 December 2013. The Court found for the Canada Revenue Agency (CRA), accepting the CRA’s factoring discount of 1.013% in place of that to which the taxpayer had agreed of 2.206%. The decision provides valuable guidance on the transfer pricing of debt factoring arrangements, as well as wider views on what constitutes "recharacterisation" and when it is permissible, and the extent to which taxpayers can enter into agreements on uncommercial terms or terms which deny rights to related parties (and so justify a high transfer price paid to them) to an extreme extent.
On an interesting technical point, the court suggested that the important risk-shifting component of the factoring arrangement could have been priced separately by reference to insurance premia and credit default swaps (sources of information that were also referred to in GE Capital Canada). One wonders in this respect whether to do so could be to ignore the risk-shifting benefits and savings in contracting costs for the recipient of a bundled set of services, rather as the OECD’s Working Party 6 has noted in the context of franchise arrangement in its Revised Discussion Draft on the Transfer Pricing of Intangibles of 30 July 2013 (paragraphs 116-121).
Keywords: transfer pricing, OECD, factoring, arm's length
JEL Classification: H25, H20, H26, H87
Suggested Citation: Suggested Citation