Canada among countries to see increased audit activity and penalties
TORONTO, Feb. 18 /CNW/ - Transfer pricing transactions between Canadian
companies and their related parties outside of Canada are valued at
more than $1.5 trillion annually. With transfer pricing rules
essentially dictating how much of a company's profit will remain in
each country, it's no wonder the Canada Revenue Agency (CRA) and other
global tax authorities are focused on raising revenues through
taxation, says Ernst & Young.
"In the recent leave to appeal GlaxoSmithKline Inc. v. Canada to the Supreme Court of Canada, the Crown stated that the volume of
transfer pricing transactions in 2005 was more than $1.5 trillion,"
said Greg Noble, Partner in Ernst & Young's national Transfer Pricing
practice. "With this much trade moving between related companies, it's
easy to understand why transfer pricing has remained the number-one tax
issue for multinational companies for more than a decade."
Ernst & Young's 2010 Global Transfer Pricing Survey reveals that, faced with a slowly recovering global economy and record
fiscal deficits, governments are increasingly focused on raising
revenues through taxation. As a result, more jurisdictions are ramping
up enforcement efforts - not only in developed nations but in emerging
markets such as China, India, Russia and Brazil.
The findings reveal that 74% of parent companies and 76% of subsidiaries
believe that transfer pricing will be either critical or very important
to their organizations over the next two years. In fact, 68% of the 877
global survey respondents (from 25 countries) say they have undergone a
transfer pricing audit, compared with 52% in 2007.
Canada is currently ranked the fifth-most-vigilant country with respect
to transfer pricing audit enforcement. Despite increased scrutiny, only
22% of the Canadian parent companies surveyed by Ernst & Young indicate
that they prepare their related transfer pricing documentation by the
legislated due date. This level of compliance is well behind the global
average (79%), and ranks Canada among countries such as Japan, France,
Germany and Italy that have no contemporaneous documentation
requirements at all.
According to Noble, Canada's non-compliance is difficult to understand
given that the CRA publicly maintains that it has 100% coverage of
transfer pricing transactions of large-case taxpayers.
Globally, 66% of respondents have full-time internal staff dedicated
exclusively to transfer pricing, and 62% report an increase in use of
external consultants. It is clear that the increasing dominance of
international trade through multinational companies will be accompanied
by an intensity around transfer pricing enforcement, planning and
"Globalization has resulted in a shift in international trade that's
dominated by multinational corporations," said Noble. "And given the
significant number of cross-border transactions happening in Canada,
companies need to work harder to adopt a more proactive stance in
defending their transfer pricing policies and practices."
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