Transfer Pricing in Canada and the United States (eBook)

1 What is transfer pricing?. 8
1.1 How this book will help. 8
1.2 International dealings 101. 8
1.3 The value chain and transfer pricing. 9
1.4 The OECD’S Base Erosion and Profit Shifting Initiative. 10
1.5 Value chain and complexity. 10
1.6 Enterprise Resource Planning (ERP) 10
1.7 Making transfer pricing operational 11
2 Fair market value and transfer pricing. 13
2.1 The arm’s length principle. 13
2.1.1 Overview.. 13
2.1.2 Canada. 14
2.1.3 United States. 15
3 Documentation of the value chain. 17
3.1 Functional and comparability analysis of the value chain. 17
4 Intangible property in controlled transactions. 20
4.1 Overview.. 20
4.2 Categories of intangible property. 20
4.3 Transactions where there is intangible property. 21
4.4 Special situations. 22
4.4.1 Government assistance in Canada. 22
4.4.2 Marketing intangibles in Canada. 23
4.4.3 Legal ownership. 23
4.4.4 Withholding tax regimes. 24
5 Intragroup services. 26
5.1 Overview.. 26
5.2 Categories of intragroup services. 26
5.3 Recent controversies in intragroup services. 28
5.4 Additional features of intragroup services. 29
5.4.1 Whether intragroup services have been rendered. 29
5.4.2 The nature of the arm’s length compensation. 30
5.5 Special situations. 32
5.5.1 Apportionment methods. 32
5.5.2 Low value-adding intragroup services. 34
5.5.3 Market-based methods. 34
5.5.4 “Management fees”. 35
6 E-commerce tax trends. 37
6.1 Introduction. 37
6.2 Taxation of income derived from e-commerce. 37
7 The selection of a transfer pricing method. 39
7.1 Overview.. 39
7.2 The transfer pricing methods. 39
7.2.1 Comparable Uncontrolled Price/Comparable Uncontrolled Transaction Method (CUP/CUT) 40
7.2.2 Resale Price Minus Method (RPM) 40
7.2.3 Cost Plus (CP) Method. 41
7.2.4 Transactional Net Margin Method / Comparable Profits Method (TNMM/CPM) 41
7.2.5 Profit Split Method (PSM) 42
7.2.6 Unspecified methods. 43
8 Quantifying the cross-border transactions of the value chain. 44
8.1 Comparison: where the rubber meets the road. 44
8.2 Comparison through prices, values or margins. 44
8.2.1 Prices or values. 44
8.2.2 Margins. 45
8.3 Search process. 45
8.4 Arm’s length range. 46
9 Documentation design for tax compliance. 47
9.1 Overview.. 47
9.2 Background of the OECD three-tiered approach. 47
9.3 The OECD three-tiered approach. 49
9.3.1 The Master file. 49
9.3.2 The Local file. 50
9.3.3 The Country-by-Country Report 50
9.4 The three-tiered approach in Canada. 53
9.4.1 Overview.. 53
9.4.2 T106 Reporting. 53
9.4.3 RC4649, Country-by-country reporting. 54
9.4.4 Documentation. 57
9.5 The three-tiered approach in the United States. 59
9.5.1 Forms 5471 and 5472. 59
9.5.2 Form 8975, Country-by-Country Report 60
9.5.3 Documentation. 63
10 Audit mechanisms. 65
10.1 Canada. 65
10.2 United States. 66
11 Reasonableness and penalties. 69
11.1 Overview.. 69
11.2 Canada. 69
11.2.1 Penalties. 69
11.2.2 Reasonable efforts. 70
11.3 United States. 72
11.3.1 Penalties. 72
11.3.2 Adequacy and reasonableness of documentation. 73
12 Mutual agreement procedure. 75
12.1 Background. 75
12.2 Canada and the United States. 76
12.3 Competent Authority assistance. 78
13 Advance pricing arrangements. 81
13.1 Background. 81
13.2 The APA process. 81
13.3 APA rollbacks. 83
14 Do you need an advisor?. 85