TRANSFER PRICING

Transfer Pricing 

 

What is transfer pricing?

Transfer pricing is method of pricing of goods and services exchanged between multinational companies and cross-borders ventures.

Who is the tax authority in Canada?

Canada Revenue Agency (CRA).

The tax law: Income tax act (Canada) section 247

Interpretation of The Arm’s Length Principle (ALP)

The “arm’slength principle” of transfer pricing states that the amount charged by one related party to another for a given product must be the same as if the parties were not related. An arm’slength price for a transaction is therefore what the price of that transaction would be on the open market.

 

Section 251 of the Act CANADA

Transfer Pricing Methods 

The Canada Revenue Agency follows the OECD Guidelines regarding transfer pricing as follows:

  • (CUP) – comparable uncontrolled price – preferred method  
  • Others in priority are:
    • Resale price (RPM)
    • Cost plus (CP)
    • Profit split (PSM)
    • Transactional net margin (TNMM).

Transfer Pricing Penalties :

Penalty is 10% of the amount by which the transfer pricing adjustments exceed the lesser of (i) 10% of gross revenue and (ii) CAD $5 million.

For more information Click  here

Reduction in Penalties : A penalty may be reduced where reasonable efforts were made to determine and use arm’s length principle (ALP) transfer prices.

Documentation Requirements :

Taxpayers are required to contemporaneously document their methodology of determining their transfer pricing method, as well as transfer pricing transaction details. Documentation should include a complete and accurate description of: property or services transferred; terms and conditions; identity of participants and relationships; functions performed, property used, risks assumed; analysis to determine the transfer pricing method used; factors that influenced the determination of transfer prices; and overview of business

Deadline to Prepare and Submit Documentation :

Documentation must be prepared by the filing due date of the taxpayer’s tax return. The taxpayer must submit the documentation within three months of a request by the CRA.

Return Disclosure Related and Submit Documentation :

 Form T106 is required in most cases.

 

Statue of  Limitations: Generally, four years from the date of notice of assessment for a particular year, unless there is fraud or misrepresentation, in which case there is no time limit.

Advance Pricing Agreements : APAs can be made with the CRA. For more information click here.

Burden of Proof : The taxpayer.

Principal Differences With OECD Guidelines : Almost all OECD Guidelines are followed

Avoid Exposure: 

Avoid the CRA attention by providing detailed up to date information of your business, with tax and reporting compliance, transfer pricing, voluntary disclosures and resolving tax disputes with both the Canada Revenue Agency and the provincial revenue authorities. Companies who stay on top of these changes can ensure, they’re not attracting unwanted. Preparation of policies and documentation across multinational enterprise groups. They expect to see the reasoning behind transfer-pricing practices with specific details and consistent arm’s-length pricing determinations throughout the organization. Consistency is the key.

With these guidelines, if applied properly should help you to come to the right approach. It his always important to stay up to date of new regulations or laws.

Need Help?

UHY Victor has expertise dealing with Canada/U.S. transfer pricing issues Contact us a for a free consultation regarding your transfer pricing situation:

 

Need Help With Transfer Pricing?

Contact the UHY Canada U.S. Tax Team:

crossbordertax@uhyvictor.com

(514) 282-0067