Arm's Length Matters


September 13, 2016

Lady squashing grapes in a large vat

The following are 10 easy-to-squash transfer pricing exposures. These exposures do not involve any restructuring of business operations, do not require changes to transfer pricing methods, and do not require alternative valuations to be performed. These exposures relate directly to 10 best practices that can cost your company money when not followed.

August 4, 2016

When establishing and maintaining Cost Contribution Arrangements, you typically will come across one or more of these three transfer pricing monkeys. These monkeys refer to one of three common instances when following the arm’s length principle will get you in trouble with tax authorities. These three monkeys refer to tax incentives, stock option expenses, and funding returns.

May 11, 2016

On March 2nd, 2016, the Canada Revenue Agency (CRA) released its most recent transfer pricing memorandum (TPM-17) on the topic of The Impact of Government Assistance on Transfer Pricing. TPMs provide guidance but are not considered Canadian law.

TPM-17 reiterated the CRA’s audit policy of increasing the transfer price of products or services provided by Canadian companies to their foreign related parties if (1) the Canadian government provided financial assistance and (2) this financial assistance served to lower the transfer price. The CRA will not reassess an increase of transfer pricing in the event that reliable evidence exists that arm’s length parties would have reduced the price of the product or service under the specific facts and circumstances.

June 22, 2016

The Medtronic case is the latest jurisprudence that illustrates how unpredictable transfer pricing decisions can be. From reading a number of commentaries regarding the recent court decision, there appears to be some surprise in the decision that provided high profits to an entity that the IRS considered to be a contract manufacturer. I believe that this uncertainty directly relates to the existence of these transfer pricing ‘murky waters’. Specifically, the traits and characteristics of the comparables used as well as the scope and responsibilities held by the key manufacturing Puerto Rican entity were ‘murky’ and were subject to more than one interpretation.

May 15, 2015

Whenever merchandise is imported from a related party, the transaction is valued for both customs and transfer pricing purposes. The approach taken by customs and transfer pricing in the determination of the transaction value is often similar and consistent. When this is not the case, additional compliance costs as well as customs and income tax exposure for multinational enterprises can occur.