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Transfer Pricing Canada Gets Serious
By Howard L. Wasserman, CA, CFP, TEP
Cadesky and Associates LLP (Toronto)
Over the past 10 years, there's been a lot of talk about transfer pricing, arm's length standards, fair market value, OECD models and so on. Aside from very large corporations, nobody really paid much attention. A required form, introduced several years ago (form T106) still failed to get people to take this matter seriously.
This is all about to change.
Effective January 1, 1998, non-arm's length transactions with foreign persons will have to be documented, indicating how the pricing was arrived at. Legislation will now require "accurate and complete" documentation and will call for an enormous amount of detail. The documentation standard is almost impossible to achieve, and must be done contemporaneously or within 60 days of year-end. Otherwise a 10% penalty can be applied to any income adjustment Revenue Canada may make.
Fortunately, there is a minimum threshold ($1,000,000 of non-arm's length sales per year) beneath which the detailed rules do not apply. We predict that transfer pricing will be the hottest tax issue as we enter the next millennium.