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MNP Transfer Pricing

MNP Transfer Pricing

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Published by National Post
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Published by: National Post on Feb 15, 2013
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08/31/2013

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Transferpricingpresentsrisksandopportunities
 Angeline Zioulas, transfer pricing partner in MNP’s Vancouver office, considers theOECD Guidelines for Multinational Enterprises her “bible” for advising clients.These guidelines are the primary source of reference for the rules that govern thecomplex art of transfer pricing.Transfer pricing is an issue that must be addressed by corporations that are conducting business in more than one country. “When a corporation moves goods or services acrossan international border, these transactions must be priced such that appropriate profits arereported in each country,” Ms. Zioulas says.Large multi-nationals devote considerable time and energy to managing transfer pricing policies. However, these regulations are applicable to corporations of any size operatinginternationally, she notes. “Mid-market companies don’t have the resources necessary tohandle the issues. If corporations don’t have proper documentation to support their profitsin each country, a tax authority can assess significant tax and penalties which can befinancially crippling to companies already struggling under current global economicconditions.”There are two major drivers affecting change in transfer pricing practices, says JohnDurland, vice-president of international tax services for MNP in Toronto. “The volume of global transactions crossing borders has grown exponentially over the last decade. At thesame time, tax authorities are looking more and more to transfer pricing as a way toincrease tax revenues.”By way of example, an equipment manufacturing company in Canada selling products toU.S. customers may transfer ownership of the equipment to a U.S. subsidiary at an“appropriate” cost. If the transfer price (i.e. price charged to the subsidiary) is too high,too much profit is shifted to Canada to be taxed in that jurisdiction. If it’s too low, toomuch profit will shift to the U.S.Determining an appropriate transfer price is not an exact science, says Ms. Zioulas.“Transfer pricing legislation is a grey area of tax, and the ultimate goal is to ensure allrelevant countries are satisfied with the result.”The most important thing companies need to do is establish their transfer pricing policies properly from the outset, Ms. Zioulas says. “Not every client we see has done that. Inmany situations, companies have not sought the advice of a specialist in setting up their international structures or transfer pricing policies and the tax authorities are knocking attheir door. A well-documented transfer pricing policy enables corporations to spend lesstime arguing with tax authorities and more time managing their businesses.”

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