Transfer Pricing
Every Canadian taxpayer that has cross-border transactions with a related party in other jurisdictions must be compliant with transfer pricing legislation as outlined in Section 247 of the Income Tax Act.
With the global economy in flux, taxation authorities around the world are looking for as many sources of revenue as they can identify. Transfer Pricing is one of the means governments can use to increase their tax revenue. Therefore, it is critical to establish a transfer pricing policy that achieves the following objectives:
- Minimizes your income tax exposure wherever possible and appropriate
- Minimizes indirect tax exposure
- Streamlines operational costs
- Addresses custom and duty costs effectively and efficiently
Typically, many underestimate the financial risk to their organizations that incorrect or incomplete transfer pricing documentation may present. People look at the tax liability for one year; however, the Canadian taxation authority is able to apply its reassessments as far back as seven years and add interest and penalties. Thus, it is important to ensure that your documentation is accurate and complete to avoid any unnecessary costs.
When deciding on a transfer pricing services provider, there are two critical criteria to consider: technical expertise and service capability.
Technical expertise
With over 15 years of experience providing Global Transfer Pricing Consulting Services (since the inception of the Canadian legislation in 1997), BDO has the technical expertise to serve your needs. We have advised hundreds of multinational enterprises on transfer pricing planning, compliance and dispute resolution matters. We have conducted comprehensive transfer pricing analyses and prepared documentation to support inbound and outbound intercompany transfer pricing policies for tangible and intangible property, as well as pricing of intercompany services and loans for Canadian, US, European, and Asia-Pacific entities.
BDO service capability
Supported by the strongest partner-to-staff ratio in the profession, we are deliberately structured to ensure that you receive attention from the most experienced professionals. This enables BDO to:
- Identify and resolve issues quickly
- Provide senior-level contact to address your concerns
- Address the key issues proactively and efficiently with the least amount of disruption to your organization
| Contact us |
David Kemp
National Leader, Global Transfer Pricing & Dispute Resolution Services
Phone: 416-369-6051
E-mail: dkemp@bdo.ca |
Services
We offer a broad spectrum of transfer pricing services encompassing: planning; benchmarking; compliance and documentation; risk assessment; and, dispute resolution.
Planning
As organizations grow, so do their potential exposures to global tax and regulatory risks. To meet these challenges, multinationals must prepare the right transfer pricing plan. With our comprehensive and detailed approach, BDO’s transfer pricing experts will work with you to develop a strategy that can be integrated into your overall tax plan, optimizing your company’s potential tax savings while minimizing risks.
BDO’s planning services are:
- Supported by sound economic and financial analysis that takes into account industry specific issues
- Created in adherence with national and international regulations
- Tailored to support your company’s overall tax strategy, including identifying potential savings
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Benchmarking
Your company’s transfer pricing policy must prove that its intercompany transactions are being enacted from an arm’s length position. BDO will undertake a benchmarking analysis to assist you in determining the arm’s length price or profit margin for the services or products under review. Depending on the transaction being reviewed, our benchmarking services may include analyses of royalty rates, financial ratios, or capital structures.
BDO’s benchmarking services:
- Minimize the risk of tax penalties by providing evidence to support your transfer pricing policies
- Provide your company with guidance when reviewing its policies against comparable companies in the same, or a similar, industry
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Compliance and Documentation
Multinationals must be able to provide documentation to taxation authorities that demonstrates and supports the arm’s-length nature of relevant cross-border intercompany transactions. BDO’s team will use its expertise and thorough understanding of global transfer pricing to develop documentation that ensures compliance with regulatory requirements. We can also provide you with guidelines for future documentation efforts.
BDO’s compliance and documentation services:
- Assess whether or not your company is currently compliant with Canadian and international requirements
- Advise you on maintaining compliance with Canadian and international legislation
- Provide detailed contemporaneous documentation supporting the arm’s-length nature of your company’s transfer pricing policy
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Risk Assessment
Your company may be at risk for tax penalties if it is not meeting taxation authority requirements for transfer pricing. We will provide you with an in-depth analysis of your company’s transactions to identify potential tax exposures that might lead to penalties.
BDO’s risk assessment services include:
- Detailed review of your company’s existing transfer pricing policies and intercompany transactions to ensure that the arm’s-length principle is being applied in all instances
- Analysis of your company’s financial statements to ensure that they are compliant with IFRS 12/FIN 48 regulations
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Dispute Resolution
International taxation authorities are increasingly challenging intercompany pricing structures. In the event of an audit, BDO’s dispute resolution services can:
- Identify all aspects and implications of the transfer pricing issue in question
- Develop a defense strategy for your transfer pricing policies based on national and international legislation
- Work with you to develop strategies to address any potential weaknesses in the event that any aspects of your transfer pricing policies are not strongly supportable
- Communicate and negotiate with taxation authorities on your behalf
Appeals and competent authority
As multinationals expand into new territories, their transfer pricing practices must follow regional regulations. In some cases, however, this can lead to potential double taxation by multiple jurisdictions. If your company encounters such a situation, BDO can guide you through the Appeals and/or Competent Authority processes and assist you in resolving the dispute.
Advance pricing arrangements
An Advance Pricing Arrangement (APA) is one method your company can employ to ensure compliance. With an APA, your company and taxation authorities agree to set your company’s transfer prices for future years, thereby avoiding transfer pricing disputes and penalties.
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Hot Topics
Although all crossborder transactions are of interest to taxation authorities, some tend to be examined closely by the tax authorities given their complexities and increasing sophistication required to address them. Taxation authorities in major countries have displayed increased scrutiny of the following crossborder transactions:
Financial Transactions
As companies respond to the increased interest in their transfer pricing policies, one area is often overlooked. Financial transactions, as with all cross-border transactions, are subject to the same transfer pricing requirements, i.e., they must meet the arm’s length standard and contemporaneous documentation must be prepared to support transfer pricing policies.
How BDO can help
By taking a proactive approach to documenting your company’s transfer pricing policies for financial transactions, you will not only minimize the probability of audit adjustments and dispute resolution costs for your company, you may also identify potential tax optimization opportunities as we successfully guide you through the transfer pricing process.
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Intangible Transactions
The incentive for multinational companies to transfer their profits offshore by shifting intangibles has come under growing scrutiny by international taxation authorities. These “migrations” are generally justifiable provided they are structured appropriately from an operational perspective; however, there are certain aspects of intangibles that possess characteristics which make the planning, execution and documentation of these shifts unique from other assets.
How BDO can help
Intangibles are as valuable to their companies as their tangible products or services. Our transfer pricing professionals understand the complexities of intangible transactions that allow us to provide expert advice and sound transfer pricing documentation.
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IFRS: Impact on Transfer Pricing
You are probably well aware of International Financial Reporting Standards (IFRS) and its full implementation by 2011. What you may not have considered is how IFRS will affect your company’s transfer pricing policies. Ensuring they take into account the move to IFRS is crucial in maintaining contemporaneous documentation.
The implementation of IFRS is of global significance, as there will be one set of enforceable accounting standards worldwide. Multinational entities likely recognize the impact the conversion will have on their financial reporting, but the future impact of IFRS on transfer pricing may be less well known.
In order for your company’s transfer pricing documentation to remain in adherence to standards, it is vital to understand how the change to IFRS will influence your policies.
How BDO can help
Our team of transfer pricing professionals is aware of the pitfalls that companies need to avoid in order to maintain their documentation. We apply detailed quantitative and qualitative analyses along with an in-depth knowledge of various industries to determine the best comparables for your documentation while being mindful of the impact of IFRS on comparable company financial statement information.
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