Transfer Pricing

July 31, 2026

Why It Matters More Than Ever — And How Kreston GTA Can Help

The Issue Hiding in Plain Sight

For any business with cross-border operations — whether that means a Canadian manufacturer with a U.S. subsidiary, a growing tech company routing IP through a foreign affiliate, or a private company with related entities in multiple jurisdictions — transfer pricing is rarely front of mind until it becomes a problem. By then, the cost of getting it wrong can be significant: reassessments, penalties, double taxation, and drawn-out disputes with tax authorities on both sides of the border.

Transfer pricing refers to the rules and methods used to price transactions between related parties — the sale of goods, provision of services, licensing of intangibles, or intercompany financing — that cross a tax jurisdiction. The central principle, endorsed by the OECD and adopted by the Canada Revenue Agency (CRA) and tax authorities worldwide, is the arm’s length principle: related parties must price their transactions as if they were unrelated parties dealing at arm’s length in comparable circumstances.

Simple in concept. Complicated in practice.

Changes in Canada

Canada’s transfer pricing landscape changed fundamentally on March 26, 2026, when Bill C-15 received Royal Assent, rewriting section 247 of the Income Tax Act for taxation years beginning after November 4, 2025. The reform replaces the former two-part adjustment system with a single operative rule under which the CRA may adjust any transaction, or entire series of transactions, whose actual conditions depart from arm’s-length conditions, and it explicitly empowers the tax authority to look past written contracts to the parties’ actual conduct and the economically relevant characteristics of the arrangement, applying section 247 consistently with the 2022 OECD Transfer Pricing Guidelines.

For taxpayers, the practical risks are immediate: the window for producing contemporaneous documentation upon a CRA request has been slashed from three months to just 30 days, which is far too short to build a defensible file from scratch, while the penalty threshold, now the lesser of $10 million or 10% of gross revenue, applies against a broader base of potential adjustments. Intercompany agreements that no longer reflect how the business actually operates are now a direct audit exposure, making it essential to review, align, and document cross-border arrangements before the CRA comes asking, not after.

Why Transfer Pricing Has Become a Priority for Tax Authorities

Over the past decade, transfer pricing has moved from a niche technical concern to one of the top audit priorities for revenue agencies globally. A few forces are driving this:

Base erosion concerns. Tax authorities are increasingly focused on ensuring profits are taxed where economic activity actually occurs, not simply shifted to lower-tax jurisdictions through intercompany pricing.
Increased information sharing. Country-by-country reporting and enhanced exchange of information between tax authorities mean discrepancies between what’s reported in different jurisdictions are far easier to spot than they used to be.
Documentation requirements with teeth. In Canada, contemporaneous documentation isn’t optional — it’s the difference between accessing a due diligence defence against penalties and being exposed to them. Under section 247 of the Income Tax Act, penalties can apply where adequate documentation isn’t in place at the time a transaction occurs, regardless of the ultimate pricing outcome.
Complexity of related filings. Transfer pricing rarely exists in isolation. It intersects with foreign affiliate reporting (T1134), controlled foreign affiliate rules, thin capitalization limits, and the structuring of cross-border financing and IP arrangements.

Common Situations Where Businesses Get Exposed

Some of the most frequent scenarios we see include:

Intercompany management fees or service charges that lack a clear benefit test or a defensible pricing methodology.
Cross-border financing arrangements — intercompany loans, guarantees, or cash pooling — priced without reference to comparable arm’s length terms.
IP migration or licensing structures where royalty rates aren’t supported by functional or economic analysis.
Growing private companies that set up a foreign subsidiary or CCPC-adjacent structure for expansion purposes without transfer pricing being part of the original planning conversation.
Businesses relying on outdated documentation that no longer reflects the current functional and risk profile of the group.

In many cases, the issue isn’t that the pricing itself was unreasonable — it’s that nothing was documented to demonstrate why it was reasonable. That gap is exactly where CRA reassessments and penalty exposure tend to originate.

How Kreston GTA Approaches Transfer Pricing

As part of the Kreston Global network, Kreston GTA brings together local Canadian tax expertise with direct access to Kreston colleagues around the world who are recognized authorities on transfer pricing. That combination matters, because effective transfer pricing work isn’t just about applying a formula — it requires understanding both sides of the transaction, in both countries, under both sets of rules, informed by specialists who work in transfer pricing every day.

Our approach typically includes:

Diagnostic review. Before recommending anything, we assess existing intercompany arrangements, current documentation (or lack thereof), and the group’s overall structure to identify where real exposure exists versus where things are already sound.
Functional and economic analysis. We look at what each entity in the group actually does — the functions performed, assets used, and risks assumed — because that analysis, not just the numbers, is what determines an appropriate arm’s length outcome.
Documentation that holds up. We prepare transfer pricing documentation designed to meet the CRA’s contemporaneous documentation requirements, giving clients access to the due diligence defence against transfer pricing penalties.
Coordinated cross-border execution. Through the Kreston Global network, we coordinate with member firms in relevant jurisdictions (the UK, the U.S., and others) so that positions taken on one side of the border are consistent — and defensible — on the other.
Access to recognized global transfer pricing expertise. Transfer pricing is one of the areas where the Kreston Global network adds the most value. We work directly with Kreston colleagues internationally who are recognized authorities in transfer pricing, giving our clients access to specialist technical knowledge and jurisdiction-specific insight that goes well beyond what any single local firm could offer on its own. A Canadian client isn’t just getting a Canadian perspective on a cross-border issue — they’re getting input from specialists actively practicing transfer pricing in the counterparty jurisdiction.
Integration with broader cross-border tax planning. Transfer pricing doesn’t happen in a vacuum. Our team regularly works through related issues in the same engagement — foreign affiliate reporting, CCPC structuring considerations, and the interaction between transfer pricing positions and overall corporate structure — so clients get one coherent answer rather than pricing advice that conflicts with the rest of their tax planning.

Who This Is For

This work is most relevant for:

Privately held businesses expanding into new markets through related entities
Canadian companies with U.S. or UK subsidiaries (or the reverse)
Groups undertaking intercompany financing, IP licensing, or management service arrangements
Businesses that have never formalized transfer pricing documentation and want to understand their exposure
Companies facing a CRA transfer pricing review or audit

The Bottom Line

Transfer pricing isn’t just a compliance checkbox — it’s a control point for how a cross-border business manages risk and protects itself from double taxation and penalty exposure. The businesses that handle it well aren’t the ones with the most complex structures; they’re the ones who documented their reasoning before a tax authority asked for it.

If your business has cross-border intercompany transactions and you’re not confident your documentation would hold up to scrutiny, that’s exactly the kind of conversation our cross-border tax team is built to have. Reach out to Kreston GTA to start with a review of where you stand today.