Canadian Transfer Pricing Developments Multinationals Should Know About

Prompted by government concerns about the depletion of Canada’s tax base, tax authorities here are now using transfer pricing principles as a primary audit tool to evaluate – and challenge – income allocation to Canada by multinationals. As a result, virtually all cross-border business activities between related parties are now subject to transfer pricing audits. Here, we look at some of the key areas tax authorities are zeroing in on.

In less than 10 years, cross-border transfer pricing principles in the Canadian tax system have undergone a metamorphosis. From a supporting role – as a relatively minor and infrequently enforced compliance measure for pricing goods and services between related parties generally – transfer pricing has become the predominant analytical tool for policing the extent to which a multinational group's profits are subject to Canadian taxation.