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Overview of Transfer Pricing

Transfer pricing is one of the most critical tax issues today. As Canadian companies become more international in focus and establish foreign subsidiaries and affiliates, the amount of cross-border intercompany transactions increases dramatically. With this globalization trend, there is a movement by tax authorities worldwide to better enforce certain transfer-pricing rules and regulations. The objective is to make sure that intercompany pricing and charges approximate what arm's-length people would reasonably charge in similar circumstances. Canada's new transfer-pricing rules require extensive annual documentation of transfer-pricing and cost-sharing arrangements between non-arm's-length parties. Serious penalties can apply if this documentation fails to comply with the standards required by the legislation.