New2Pipe,
I just did a quick check on this using a calculation tool I developed for this very purpose.
I am assuming that this service is sour and you are using a liquid hydrostatic test medium, since these conditions give rise to F=0.8 and L=0.625. Your DOS is then based on the hoop stress at MOP, whereas it otherwise might be (indeed, in this case, it is) based on the hoop stress at test pressure if testing with a gaseous medium. No matter; I ran both cases and the same minimum required wall thickness was computed.
Remember that CSA Z662 does permit you to set your mechanical allowances to zero towards the computation of minimum wall thickness. That said, I evaluated 12" XS Grade 290 pipe with the CSA Z245.1 / Z245.11 / Z245.12 default mill tolerance of 12.5% and CA=0. If you then automatically impose the constraints on combined hoop and longitudinal stresses in Clause 4, then these considerations govern in the computation of minimum wall thickness and your findings are correct: a Grade 290 flange is not adequate at the thin wall end. A Grade 290 flange does appear to be adequate, however, when you set the mill tolerance to zero, provided your pipe wall installation temperature at the time of initial restraint is -14.4 C or higher.
As an aside, my calculation does not automatically invoke constraints on combined hoop and longitudinal stresses towards the determination of minimum wall thickness until after a stress analysis is performed to evaluate what the combined stresses actually are.
So, you could specify the flange as "machine bored" or "specified minimum wall" to 12.7 mm (SCH XS), but I agree with your original finding, namely, you need a higher grade than 290.
In short, you are correct, you need to specify the grade of the flange as well as the other data that was specified.