Transfer Pricing

Canadian transfer pricing and tax considerations for companies in the technology industry

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While transfer pricing considerations affect companies in numerous industries, technology companies face challenges in this space. To mitigate the potential pitfalls and unlock transfer pricing and tax planning opportunities, it’s important for tech companies to establish an effective transfer pricing framework.

In adopting such a framework, tech companies need to look at three primary factors: their intellectual property (IP), their remote workforce and their funding arrangements. 

When it comes to IP, transfer pricing issues commonly arise if tech companies cannot clearly establish which corporate group owns their IP. This task is complicated by the fact that IP is portable and often developed by remote teams working in multiple countries—leading to complexity for tax authorities to assess the jurisdiction under which the business profits related to that IP should be taxed. 

Similar challenges arise for companies that rely on remote workforces. Specifically, tech companies could inadvertently create a taxable presence in a foreign jurisdiction if they have employees or directors operating there—resulting in potentially significant, tax consequences. 

Yet another hurdle tech companies face in setting up effective transfer pricing frameworks relates to funding. Without the proper processes and policies in place, companies could miss opportunities to access available government incentives or find themselves unable to deduct interest paid on intercompany loans from business profits. 

Given the repercussions of a transfer pricing misstep—including its potential dampening affect on corporate valuation during an M&A transaction—it’s imperative to address these risks upfront. In this article, we explore each of these issues in further detail and outline strategies tech companies can use to establish effective transfer pricing policies.