Transfer pricing: trade and investment in Canada

Optimizing the opportunities for Indian companies in Canada should include planning to minimize income tax, customs duties, and value added taxes.

How does one maximize “after tax/ duty” income? And how do Indian companies defend their tax and customs positions from encroachment by government tax and customs authorities? These vital questions should be addressed at the early stages of implementation of trade and investment strategies with a proactive, unified approach to tax and customs transfer pricing.

The arm’s length principle

Transfer pricing in Canada is guided by the principle that cross-border related party transactions must occur on arm’s length terms. Under Canadian law, the arm’s length principle is extends to all related party cross-border dealings, including in goods, services and intellectual property (licensing). The onus is on the related parties to determine and use arm’s length transfer prices to protect related party transactions from attack by tax and customs authorities and minimize the risk of double taxation, re-characterization of payments, and assessments of taxes, duties, interest and penalties.

Claire MC Kennedy and Darrel H Pearson are both partners at Bennett Jones LLP. Bennett Jones has particular expertise in the energy and natural resources sector, especially oil and gas. It has more than 400 lawyers and advisers in major cities across Canada as well as in Dubai.