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Spotlight On... SPOTLIGHT ON...
Transfer Pricing Compliance in Canada
David Francescucci, KPMG
“The Canada Revenue Agency (CRA) is considered one of the more active tax authorities around the world in terms of audit coverage and compliance. Taxpayers across industries are witnessing an increase in audit activity, the issuance of TP documentation request letters and the levying of penalties, regardless of the size or complexity of the organization.”
D Q avid Francescucci leads
KPMG’s transfer pricing practice in Canada, as well as the Value Chain Management (VCM) service
offering. VCM integrates international tax, transfer pricing and supply chain and operations strategies to achieve sustainable operational and financial benefits. For the past 14 years, David has been focusing on international tax and transfer pricing, as well as spending three years as head of tax for a large Canadian entertainment company. Consequently, his knowledge of Canada’s Transfer Pricing landscape is practical and comprehensive.
What more can you tell us about your specific area of practice within KPMG?
Transfer Pricing (TP) has been a top priority for tax authorities and multinational enterprises (MNEs) around the world for many years now, and the situation is no different in Canada. It is also taking centre stage in the G20-sponsorsed OECD initiative and action plan on Base Erosion and Profit Shifting (BEPS) and Action Plan since it is perceived as one of the mechanisms often used to erode the tax base of high tax jurisdictions.
We are assisting clients in all aspects of TP, including VCM, TP automation and processes, TP compliance, TP dispute resolution and controversy, and TP litigation. The Canadian TP landscape is such that we are assisting both Canadian-based MNEs and foreign MNEs with operations in Canada in pretty much all areas of transfer pricing, including tangible goods transactions, intra- group services, intangibles transactions and financial transactions (intercompany loans, guarantees, etc.).
In today’s fast changing tax landscape (due to the tax morality debate and the BEPS initiative, amongst others), our practice is witnessing 1) a call for increased transparency for TP risk assessments, 2) increased disputes by tax authorities over the same tax dollars, and 3) a more balanced and responsible approach to TP planning that is typically closely-aligned with actual business models and operations.
From a TP planning / VCM perspective, we help our clients unlock the full potential of their value chain, and we do so with a tax mind to enhance value through symbiotic operational and tax planning. Whether along the various pillars of the supply chain, the multiple aspects of branding and
innovation, or in the context of finance and risk management strategies, our practice drives benefits that far exceed traditional operational synergies.
Q
What can you tell us about Canada’s transfer pricing landscape?
The Canada Revenue Agency (CRA) is considered one of the more active or aggressive in the eyes of many tax authorities around the world in terms of audit coverage and compliance. Taxpayers across industries are witnessing a steady increase in audit activity, the issuance of TP documentation request letters and the levying of penalties, regardless of the size or complexity of the organization.
The CRA has over the years added more dedicated audit resources to TP and are anticipated to continue to increase their focus in the area.
The CRA benefits from a rather long statute of limitation (almost 8 years following the end of a taxation year) to raise TP adjustments, although this period can be limited by tax treaties entered into by Canada. While the CRA aims at becoming more current in its enforcement activities, taxpayers often have