Tax and transfer pricing

Pricing considerations for Canadian-headquartered mining companies

As a mining company, setting up your headquarters in Canada, while conducting the rest of your mining operations in other jurisdictions, simply makes good business sense. After all, Canada is a leader in the mining sector, with plenty of capital, industry expertise and favorable tax incentives. However, mining companies with this structure can face some hefty taxation headaches without careful planning.

A robust transfer pricing framework is often essential for Canada-headquartered companies with mining operations overseas. Not only can such a framework allow you to reduce or potentially avoid non-compliance tax penalties from the CRA, but it also offers a host of benefits, from effective tax rate management to tax-efficient cash repatriation.

In this article, we highlight transfer pricing considerations around:

  • Internal and external financing, such as debt financing and streaming transactions, in compliance with Canadian transfer pricing legislation
  • Centralized marketing functions—specifically, the differences between a marketing agent and marketing support services from a transfer pricing and compensation perspective
  • Centralized procurement hubs—that is, the importance of setting up a cost-based or value-based compensation amount that reflects the functions performed, assets used, and risks assumed by the entity
  • Centralized R&D functions that compensate the Canadian company a cost-based or value-based amount that reflects the functions performed, assets used, and risks assumed in the context of the development, enhancement, maintenance, protection and exploitation (DEMPE) of the multinational enterprises’ intangibles.

There are many opportunities for Canadian-headquartered mining companies to establish a transfer pricing framework that both minimizes transfer pricing risks and achieves efficiencies across multiple jurisdictions.