Jurisdiction Under Scrutiny: 8 Things to Know About Transfer Pricing in Canada

The Canada Revenue Agency (CRA) is known to scrutinize the transfer pricing of multinational companies. With the June 30 deadline quickly approaching, now’s the time to prepare robust documentation. Here’s the inside scoop on complying in Canada.  

1. Canada’s contemporaneous transfer pricing documentation deadline is June 30. Now’s the time to prepare documentation, even though submission is only required upon request. If documentation is requested, you’ll have only three months to turn it in.  
2. Generally, Canada adheres to the OECD’s transfer pricing guidelines. Still, you’ll have to file additional country-specific reports like Form T106, which lists related-party transactions and is submitted with the corporate tax return. The CRA uses data Form T106 to screen taxpayers for audits.  
3. While Canada adheres to OECD transfer pricing methods, traditional transactional profit methods (CUP, resale price, cost plus) are preferred over profit-based methods (transactional net margin method, profit split method). The CUP method is the most reliable in proving arm’s length pricing. Under audit, transfer pricing methods are highly likely to be challenged.  
4. Canada prefers local benchmarks to the jurisdiction of the tested party. Canadian benchmarks are preferred if the tested party is in Canada, but North American benchmarks are also generally accepted.  
5. Single-year analyses are generally required, and the full range is acceptable in determining arm’s length transfer prices.  
6. While some countries have exemptions for small transactions, Canada’s transfer pricing rules apply to all Canadian taxpayers—there are no thresholds or exemptions. Documentation is a must for all related-party transactions.  
7.  The CRA is known to scrutinize transactions involving corporate restructuring and royalties. Financial and service transactions also warrant extra attention.  
8. Documentation is accepted in English or French.  

 Want to learn more about transfer pricing in Canada? Ready to start your documentation? Talk to our Canadian transfer pricing specialists. Schedule time here.