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

See all articles by Danny Beeton

Danny Beeton

Freshfields

Murray Clayson

Freshfields Bruckhaus Deringer - Freshfields Bruckhaus Deringer LLP

Rupert Macey-Dare

St Cross College - University of Oxford; Middle Temple; Minerva Chambers

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

Beeton, Danny and Clayson, Murray and Macey-Dare, Rupert, The Mckesson Canada Decision: Further Guidance on the Transfer Pricing of Debt Factoring Arrangements (March 1, 2014). Transfer Pricing International Journal 2014, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2496871 or http://dx.doi.org/10.2139/ssrn.2496871

Danny Beeton

Freshfields ( email )

65 Fleet Street
London EC4Y 1HS
United Kingdom

Murray Clayson

Freshfields Bruckhaus Deringer - Freshfields Bruckhaus Deringer LLP ( email )

65 Fleet Street
London, UT EC4Y 1HS
United Kingdom

Rupert Macey-Dare (Contact Author)

St Cross College - University of Oxford ( email )

Saint Giles
Oxford
United Kingdom

Middle Temple ( email )

Middle Temple Lane
London, EC4Y 9AT
United Kingdom

Minerva Chambers ( email )

London
United Kingdom

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