Global recession puts another squeeze on Canadian multinationals: Ernst &
Young
Tax authorities focus on enforcement to raise tax dollars
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The recession has caused many companies to restructure, or suffer reduced profits - and both can trigger audits, according to Noble. "Given the seven year statute of limitation for transfer pricing audits in
The CRA has publicly stated that it endeavours to include a review of transfer pricing in 100% of its large case tax audits. As such, it is merely a matter of time until a large taxpayer is subject to a transfer pricing audit. There is also significant audit enforcement with small and medium-sized enterprises.
Transfer pricing audits generate the largest tax adjustments for the CRA, which can be accompanied by interest and significant penalties. In addition to the financial aspects, they absorb a huge amount of time and expose the taxpayer to uncertainty that can significantly impact share price.
"To mitigate the impact of a transfer pricing audit, multinationals need to adopt a proactive approach to transfer pricing," said Noble. "Ultimately, transfer pricing needs to be an integral part of multinationals' business strategy - as it's clearly been elevated from a tax issue to a CEO issue."
The risks are clear for Canadian multinationals, as every transfer pricing transaction requires dealing with at least two different tax authorities and each will be competing for the same tax revenues. With a sharpened focus on enforcement, it is expected that the number and volume of multi-jurisdictional transfer pricing disputes will jump considerably over the next several years.
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For further information: Amanda Olliver, [email protected], (416) 943-7121; Brooke McLachlan, [email protected], (604) 899-3597; Marie-Ève Graniero, [email protected], (514) 874-4313
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