CRA recharacterization does not apply where arm’s length pricing remains available.
Courts distinguish pricing disputes from disputes over transaction structure.
The objection record sets the exposure baseline.
In Cameco Corporation v The Queen, 2019 FCA 67, CRA sought to replace a cross-border sales structure and reallocate profits to Canada. CRA advanced the position that the arrangement lacked commercial rationality and that profit belonged to the party with strategic control.
The Federal Court of Appeal rejected that position. It is improper, under section 247, for the CRA to disregard a transaction because it disagrees with the transaction's structure. Recharacterization applies only where an arm’s length price cannot be determined.
Pricing analysis remained viable on the record. The structure stood. The dispute proceeded as a pricing matter.
The Court examined whether comparability and pricing could operate within the established evidentiary frame. It did not assess business wisdom.
Pricing remained operable. Structural replacement failed.
The boundary between price and structure determined the result.
Transfer pricing disputes turn on whether pricing analysis can operate within the record. Where arm’s length analysis remains available, courts confine the issue to margins. Where it does not, the structural premise governs. In judgment-driven disputes, the objection will set the exposure baseline.
Case Reference: Cameco Corporation v The Queen, 2019 FCA 67