System Advantage and Late-Shifting Positions in Transfer Pricing Disputes

Key Takeaways 

• The Tax Court’s mandate allows the DOJ and CRA to introduce new alternative theories late in litigation, which can increase cost, delay the litigation timeline, and introduce litigation fatigue.  
• Effective executives understand that transfer-pricing disputes carry built-in asymmetry. Real protection comes from being in the right arena, where judicial oversight can counterbalance the systemic advantage. 
• The transfer-pricing framework creates heightened risk that CRA will reconsider and reshape its position mid-tax dispute. 

The Situation 

Redpath Sugar appealed reassessments denying interest deductions on a $100 million cross-border financing arrangement. The Minister initially relied solely on the recharacterization rules in paragraphs 247(2)(b) and (d) of the Income Tax Act. 

Years into the appeal, after discoveries, after refusing to answer questions on traditional transfer-pricing analysis, and with a question of law motion under reserve, DOJ sought to amend its pleadings. It added a new alternative theory under paragraphs 247(2)(a) and (c), asserting that the arm’s-length interest rate was 0%. 

The Court accepted that this late change caused prejudice. It still allowed the amendment, but awarded costs to Redpath. 

What Made the Difference 

Three considerations drove the outcome: 

• The alternative theory addressed the same transactions and relied on the same factual matrix. 
• No trial date was jeopardized. 
• The Crown accepted the burden of proving the new 0% rate and agreed to additional discovery. 

At the same time, the Tax Court acknowledged the procedural imbalance. DOJ had previously refused discovery on the very analysis it now wanted to advance and offered no sworn explanation for the timing of its shift. The Court awarded the taxpayer costs for the motion and costs for the additional pre-trial steps the amendment triggered. 

The Signal for Business Leaders 

Transfer-pricing disputes involve complex facts, multiple jurisdictions, and fluid comparability. That environment makes late-stage shifts by CRA and DOJ more likely and consequential. 

The system does not prevent the Crown from pivoting. However, only the Tax Court provides the mechanism to compensate and deter these late changes through costs. 

Leaders who understand this systemic advantage and how to counterbalance it through venue selection and procedural strategy maintain control. Those who remain in the administrative stages face evolving positions with no recourse. 

Case Reference: Redpath Sugar Ltd. v. The King, 2025 TCC 179