CRA Transfer Pricing Audit — Montreal CPA Firm Near You: Protect Your Cross-Border Transactions and Compliance

A CRA Transfer Pricing Audit focuses on the pricing of transactions between related entities — such as subsidiaries, affiliates, or branches in different countries. These audits are particularly relevant for businesses that engage in cross-border transactions, multinational operations, or intercompany service agreements. CRA applies arm’s-length principles to assess whether your transfer prices are consistent with those that would be charged between unrelated businesses in an open market.

Mackisen CPA Montreal defends corporations during CRA Transfer Pricing Audits by providing well-documented transfer pricing reports, aligning your intercompany pricing with OECD guidelines, and preparing a robust defense to demonstrate that your pricing is appropriate and compliant.

Transfer pricing is one of the most complex areas of international taxation, but with the right documentation, your company can successfully defend its tax position.

Legal Foundation

Income Tax Act s.247 — outlines the rules for determining transfer prices between related parties.
OECD Transfer Pricing Guidelines — provides international standards for arm's-length pricing and documentation requirements.
Income Tax Act s.247(3) — requires documentation of the transfer pricing methodology used.
Jurisprudence: GlaxoSmithKline Inc. v. Canada (2012 SCC) — emphasizes the importance of establishing and justifying arm’s-length pricing using credible documentation.

Learning insight: The arm’s-length principle is the core of transfer pricing audits. We ensure your pricing meets this standard — backed by comprehensive documentation.

Why CRA Initiates Transfer Pricing Audits

CRA’s transfer pricing audits are typically triggered by one or more of the following factors:
• large cross-border transactions with related parties
• significant discrepancies between the reported income and taxes paid in Canada vs. foreign jurisdictions
• transactions in low-tax jurisdictions or tax havens
• transfer pricing methods not clearly defined in the documentation
• inconsistencies between tax filings (T2, T3, etc.) and financial statements
• concerns over intangibles, royalties, or management fees charged between affiliates
• large intercompany loans with non-commercial terms (e.g., interest rates below market rates)

Learning insight: CRA audits when they suspect that tax avoidance strategies are being applied through artificial pricing arrangements. Your CPA ensures the pricing is justified and compliant.

CRA Transfer Pricing Audit Process

1. CRA sends an audit letter requesting detailed documentation of intercompany pricing methods, contracts, and transactions.

2. CRA requests transfer pricing documentation, including functional analysis, economic analysis, and market data comparisons.

3. CRA assesses the pricing method used (comparable uncontrolled price method, cost-plus method, etc.) and applies their arm's-length pricing tests.

4. CRA evaluates whether the methodology used for determining transfer prices is in line with OECD guidelines.

5. CRA proposes adjustments if the pricing methods are deemed inappropriate or inconsistent with arm’s-length principles.

6. Mackisen CPA prepares a comprehensive defense, including updated transfer pricing reports, financial reconciliations, and explanations of business operations.

7. CRA either accepts the defense or revises its findings, potentially issuing a reassessed tax bill, penalties, and interest.

Learning insight: The audit process is highly technical. Your CPA must ensure your transfer pricing methodology holds up to CRA’s scrutiny.

Mackisen CPA’s Transfer Pricing Defense Strategy

• perform a functional analysis to justify the economic contributions of each related entity in the transaction
• provide comparability studies using industry benchmarks, third-party data, and economic analyses
• ensure that intercompany service agreements and licensing arrangements are compliant with the arm’s-length principle
• document transfer pricing methods used and align them with OECD guidelines
• reconcile any discrepancies in income or expenses reported in Canada vs. foreign affiliates
• handle advanced pricing agreements (APA) requests when needed to pre-emptively resolve transfer pricing concerns
• represent your business in disputes with CRA, using professional negotiation and tax law to reach favorable outcomes

Learning insight: Transfer pricing audits require detailed economic evidence and industry analysis. We provide both, ensuring your methods are clearly justified.

Common CRA Findings in Transfer Pricing Audits

• incorrect pricing methods that don’t reflect the arm’s-length standard (e.g., using cost-plus instead of comparable uncontrolled price)
• failure to produce adequate documentation for intercompany transactions (contracts, invoices, comparables)
• misallocated profits between Canadian and foreign entities
• non-commercial terms in intercompany loans (e.g., below-market interest rates)
• failure to apply appropriate transfer pricing adjustments for intangibles, royalties, or management fees
• inconsistencies between foreign tax filings and Canadian return filings (T2, T3)
• incorrect allocation of R&D expenses or SR&ED claims between entities

Learning insight: CRA audits are often based on small discrepancies that snowball into large penalties. Proper documentation and justification reduce the risk of these findings.

Real-World Results

• A Canadian subsidiary of a multinational corporation avoided a $2 million transfer pricing adjustment after Mackisen CPA demonstrated the proper application of market-based pricing for intercompany royalties.
• A software company saved $1.5 million in penalties when we justified their intercompany license fees by providing updated comparables from independent third-party agreements.
• A construction firm reduced a $500,000 reassessment when Mackisen CPA proved that intercompany loans were commercially reasonable and aligned with CRA’s transfer pricing guidelines.

Learning insight: Successful defense strategies rest on strong documentation and credible market data. We build both, ensuring CRA’s assumptions are challenged.

SEO Optimization and Educational Value

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Secondary keywords: CRA arm’s-length test, intercompany pricing, transfer pricing report, OECD guidelines, CRA international tax audit, corporate tax audit Montreal

Learning insight: Both SEO and CRA defense favor clarity. Structured documentation builds trust in both cases.

Why Mackisen CPA Montreal

Mackisen CPA Montreal has over 35 years of experience handling CRA transfer pricing audits for international corporations and cross-border operations. Our bilingual CPAs understand OECD standards and how to implement them across Canadian tax law. We help businesses defend their intercompany pricing practices, ensuring compliance and avoiding costly penalties.

Learning insight: Transfer pricing audits are about documenting fairness. We ensure that fairness is clearly proven through professional documentation.

Call to Action

If your business is under CRA transfer pricing audit, or if CRA has questioned your intercompany pricing, act immediately.
Contact Mackisen CPA Montreal for strategic audit defense, documentation reconstruction, and cross-border compliance.
Phone: 514-276-0808 | Email: info@mackisen.com | Website: mackisen.com

Learning conclusion: A CRA Transfer Pricing Audit tests the legitimacy of your pricing methodology. Mackisen CPA Montreal ensures your pricing is documented and defensible, preventing costly tax adjustments and protecting your business operations.