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Quarter One 2017 Transfer Pricing Newsletter

Who is TP Compass?

Located in southwestern Ontario, Canada, TP Compass is a transfer pricing boutique firm that specializes in the sole area of transfer pricing. TP Compass provides consulting services and transfer pricing tools.

We help companies ensure that their transfer pricing policies are defendable to tax authorities. We help companies strengthen transfer pricing policies that are not working the way they are desired. And TP Compass helps companies ensure their transfer pricing policies are tax efficient, easy to administer, and are consist with how their business operates.

TP Compass helps midmarket companies understand their transfer pricing exposures and identify a pragmatic and cost effective approach to mitigate against unanticipated double tax and penalties that arise from transfer pricing audits.

We work with large multinationals to complement their in house transfer pricing team to provide the resources required, including technical analysis and project management structure to ensure their annual transfer pricing obligations are fulfilled.

TP Compass serves their professional service referral network by being available to respond and provide insight on ad hoc issues with their clients and with their prospects. We help regional accounting firms and regional law firms to jointly identify and communicate the largest transfer pricing exposures of their clients in order to prevent unanticipated transfer pricing reassessments and related penalties. And when it is too late for prevention, TP compass provides the full menu of transfer pricing economic analysis and reports used in the course of transfer pricing audits.

Transfer Pricing is the practice of setting the price, term and conditions of a multinational enterprise’s cross border internal transactions. These related party transactions include:

• Tangible products that are shipped internationally
• Services that are provided cross border
• Intellectual property (i.e. global brands, internal know-how, sharing of development costs, product formulations, and marketing networks)
• Financial arrangements (i.e. cross border guarantee fees, cash pooling, intercompany lending, global insurance policies, and factoring of accounts receivable and inventory)

Transfer pricing requires a multidisciplinary approach that incorporates skills and experience in the areas of international taxation, business economics, law, customs and duty, valuation, accounting, data analytics, financial reporting, audit, and supply chain management.

Our Services

TP Compass has access and subscriptions to global financial and transactional databases used by transfer pricing experts and tax authorities for the benchmarking of business operations, financial transactions, and license rates.

TP Compass takes a risk-based approach to advising on your optimal form your transfer pricing documentation. TP Compass does not follow a one-format-fits-all philosophy. The following key issues are addressed:

• Should your documentation follow a centralized or decentralized approach?
• Can one report be prepared for two or more countries, or should you receive multiple reports? Would a Masterfile structure be applicable to you?
• Do you need an economic benchmark report today, or do you have a low risk of reassessment and an economic benchmark could be prepared later in the event of a transfer pricing audit?
• Would your documentation be better served in a PowerPoint or Word format?
• Can annual updates be prepared in a letter format? If so, for how many years before a new report should be issued?
TP Compass takes pride in providing pragmatic and cost effective solutions for our clients.

Audit Support
Through specific work experience with the Canada Revenue Agency (CRA) and knowledge of the US tax authorities, TP Compass experts have a thorough understanding of the Transfer Pricing audit process and have assisted taxpayers with many audit-related services including:

• Information Document Request process, responses and best practices
• Functional Analysis interviews during an audit
• Independent transfer pricing analyses
• Rebuttal analyses
• Appeals process
• Competent Authority matters

Strategic business actions impact transfer pricing policies - both anticipated and unforeseen implications. These strategic business actions include:

• Entering new markets
• Business restructuring
• Value chain transformations
• Business acquisitions and divestitures
• New or closing product lines
• Production location decisions

These actions frequently provide opportunities from a transfer pricing perspective. TP Compass’ insightful and pragmatic approach identifies options for management to consider for their transfer pricing policies. For each option, TP Compass’ methodical approach analyses impacts and opportunities along three core dimensions.

Tax Authority:   How defendable would the transfer pricing policy be with each relevant tax authority? This analysis incorporates recent audit activity, trends, and experts from each jurisdiction as appropriate.
Operational:   On a day-to-day basis, what is the ease of implementing the proposed transfer pricing policy? Is the transfer pricing policy consistent with the operational business model? Will there be a transfer pricing method that tests the related party transaction after the fact that is significantly different than the transfer pricing method applied in real time?
Financial:   What will be the after tax financial impact of the transfer pricing method?

Typically a small number of potential transfer pricing policies are identified and prioritized according to the above three planning dimensions.

Litigation Support and Expert Services
TP Compass provides expert services for transfer pricing and tax audit controversies from preliminary advisory all the way to expert testimony.

TP Compass’s strength in dispute resolution stems from our uncompromising objectivity; our access to specialized resources, information and experience; and our rigorous and methodical approach.

Our experts analyze raw data and information, subject them to comprehensive theoretical and empirical analyses, and present our independent findings clearly and concisely to our clients, to counsel, the courts, and other regulatory bodies.


About the Founder

Dean Morris began his career in transfer pricing in September 1996 as an MBA co-op student. Dean's first day on the job was also the first day KPMG Canada launched their national transfer pricing practice. Before the co-op work term was finished, Dean was asked to remain full-time as he completed his MBA through part-time studies. The focus in these early days was on researching, evaluating, and selecting the framework and processes to build a leading consulting practice. Dean’s primary responsibilities were in the back-room operations of the economic analysis and initial training of new staff in KPMG’s growing and successful transfer pricing practice. Over time, Dean’s responsibilities shifted to include increasing levels of direct client involvement. Under the leadership of George Will, the Toronto office of KPMG developed a strong and dynamic world-class transfer pricing team. In fact, six of these team members are now lead practitioners in a transfer pricing consulting practice.
In January 2000, Dean Morris joined PWC’s transfer pricing practice. Just over a year from the merger of Coopers & Lybrand and Price Waterhouse, the PWC Toronto practice was arguably the largest group with the most diverse clientele. For the next four years, Dean’s primary responsibilities were with direct client projects. Focusing on documentation and dispute resolution, Dean was exposed to multiple transaction types in various industries, with a particular focus in banking, insurance, automotive and chemical industries. Dean worked with many of PWC’s talented transfer pricing partners, such as Claude Lemelin who was previously Canada’s designated Competent Authority; Brenda Humphries who is a renowned technically brilliant expert; and Andrew McCrodan who is arguably the most humble and highly influential Canadian transfer pricing expert.
In January of 2004, Dean became one of the founders of Ceteris, an independent transfer pricing boutique with offices in Chicago, New York, and now Toronto. Led by Michael Heimert, Ceteris grew to multiple offices to include Calgary, Mexico City, and Auckland, New Zealand. The research department was led by David Jarczyk, who is now President and CEO of ktMINE, a world-class intellectual property information company. Ceteris worked very closely with Transfer Pricing Associates (TPA) of Europe in the sharing of best practices. It was during these times where a transfer pricing process was developed under the talented leadership of Steef Huibregtse. This transfer pricing process was a framework with various tools that link key business and industry characteristics and responsibilities to the selection and validation of transfer pricing methods. Over 10 years later, many of these same tools and principles of the transfer pricing process are found in the OECD’s guidance on aligning transfer pricing outcomes with value creation that was finalized in October, 2015.

During 2012, the US and New Zealand operations of Ceteris were acquired by Duff & Phelps. Canada and Mexico continued in the existing structure and Ceteris Canada became EMG Transfer Pricing Experts, led by Dean Morris and Merv Edwards. Dean has worked with Merv Edwards for several years, first at KPMG, and then at Ceteris and now continues to work with Merv at EMG Transfer Pricing Experts. A renowned transfer pricing expert, Merv spent the first five of his over 25 years of transfer pricing experience at the Canada Revenue Agency as one of the original transfer pricing auditors, and excels with dispute resolution.

Why Independence Matters

Dean Morris Web

Now with over 12 years working in a transfer pricing boutique environment, the top conditions that have contributed to Dean’s growing expertise and clients' successes include:

An inverse pyramid that has more senior leadership than junior staff: This provides clients with highly skilled and experienced professionals with extensive analytical capabilities. As a result, Dean delivers results that not only satisfy but exceed client’s expectations with outstanding responsiveness.

Direct contact and relationship building with world-class transfer pricing experts: Arguably, the value of an international network is valued and appreciated more by a transfer pricing boutique than within a large international professional services firm. In addition, a transfer pricing boutique is not bound to use a resource from one single brand, but is able to pick and choose the resource that delivers the highest value to the client.

Independent transfer pricing advice: The ability to produce advice that is independent and free from the internal pressures of an audit practice enables our deliverable to our client to be of uncompromising integrity.

Innovative, creative and entrepreneurial spirit: This environment is very conducive for out-of-the-box thinking that is often a necessity when finding a solution for our clients.