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Case Study 2: Transfer Pricing Audit Defense (Canada)

A Canadian company had acquired the US and Canadian operations of a US company. Under the old ownership structure, the US parent company had charged significant management services fees to the Canada operations, but had failed to fully document the services and fee structure for Canadian transfer pricing purposes. 

Prior to WTP Advisor’s engagement, the Canada Revenue Agency (CRA) audited the Canadian subsidiaries and had asserted significant income tax transfer pricing assessments and penalties with respect to the management service fees. We assisted the Canadian company in preparing a transfer pricing defense of the management service fees for the multiple years under audit.

The former US parent company had been dissolved and US financial and tax records were not readily available. In the absence of contemporaneous transfer pricing documentation for the management service fees, we prepared a look-back analysis of intercompany charges based upon limited Canadian subsidiary file data coupled with SEC filings submitted by the former US owner. Our transfer pricing analysis was accepted by the CRA and substantially reduced the proposed income tax assessment, thereby eliminating the previously asserted penalties.

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