The fedral budget of 2025 introduced the most significant reform of Canadian transfer pricing rules since the creation of section 247 of the Income Tax Act.
Compliance and strategy for your business
This reform gives legal force to the OECD Guidelines (2022 version) and gives the CRA greater discretion in determining whether transactions between related companies comply with the arm’s length principle.
The main changes include:
- An approach based on principles rather than strict rules, focused on actual economic conditions and the commercial logic of transactions,
- The CRA’s ability to reclassify or disregard certain transactions deemed economically unrealistic,
- A reduced deadline from 90 to 30 days to submit documentation in the event of a request,
- The threshold for applying penalties, previously set at the lesser of $5 million or 10% of gross revenue, is now set at the lesser of $10 million or 10% of the taxpayer’s gross revenue. The penalty rate remains unchanged at 10%.
In practice, these changes require companies to be ready for a transfer pricing audit at the end of the year and to demonstrate the economic rationality of their intra-group structures and policies.
The ABCs of transfer pricing
What are transfer princing?
When a Canadian company conducts international business with its related companies, for example by selling goods, offering services, or transferring intellectual property rights, it must determine the price at which these transactions are carried out.
These prices must comply with the arm’s length principle. In other words, they must correspond to what independent companies would accept under similar conditions.
Why are they important?
Intragroup prices (prices between companies within the same corporate group) determine the allocation of taxable income among countries. If the CRA considers a price to be too low or too high, this may result in:
- Significant tax adjustments affecting the tax payable and potentially generating withholding taxes (Part XIII tax),
- Double taxation between countries,
- And penalties of 10% if the documentation does not demonstrate that reasonable efforts were made to justify the prices.
SMEs are now increasingly targeted. Audits are intensifying and require solid documentation.
Documentation required by the CRA
The law requires companies to prepare a study demonstrating that their intra-group prices have been established according to the arm’s length principle.
Compliant documentation must describe, in particular:
- The functions, assets, and risks of each entity,
- The economic methodology used to set prices.
In the event of an audit, the CRA only allows 90 days to submit the required documentation (30 days once the reform comes into effect).
A strategic lever for SMEs
A clear and well-structured transfer pricing policy enables:
- Reduce the risk of transfer pricing adjustments and penalties in the event of a tax audit.
- Reduce the overall tax burden and the risk of adjustments,
- Optimize your corporate group’s after-tax profitability (make effective use of available tax credits and losses).
- Reducing customs duties through consistent assessment,
- Supporting your investment or international restructuring decisions,
- Align your policies with global tax standards.
Whether your company is growing, restructuring, or expanding, a proactive review of your policies can make a real difference.
Intelligent use of data translates into direct and measurable gains:
For producers:
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- reduction in inputs (fertilizers, pesticides, water)
- improved yields
- early detection of plant health risks
- optimization of equipment utilization
For processors
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- better energy efficiency
- loss and waste reduction
- optimization of recipes and processes
- improved supply planning
Result: increased profitability, enhanced foresight, and resilience in the face of climate and economic volatility.
Our approach | Demers Beaulne touch
We combine international financial databases with recognized expertise to build robust cases.
- Fact analysis: gathering information, conducting interviews, and understanding your actual cash flows.
- Economic study: identification of comparables, functional analysis, and selection of the most relevant method for setting intra-group prices.
- Report and recommendations: comprehensive documentation that is compliant and defensible before the authorities.
Our professionals will assist you with:
- Implement a compliant policy,
- Prepare your annual documentation,
- Responding effectively to the CRA.
Contact us to secure your transactions and turn compliance into a strategic advantage. Your company must declare each year whether it holds transfer pricing documentation, so be prepared!
