PDF version: The Big Picture – Supreme Court of Canada Sheds Light on Transfer Pricing

Decision commented on: Canada v GlaxoSmithKline Inc., 2012 SCC 52

Making Sense of Transfer Pricing

Multinational corporate groups often have entities which are located in various jurisdictions, according to the needs of the business and where different functions of the organization are conducted. In some instances, there is a need to price the products and services provided between the entities (and therefore between jurisdictions) – and this need is often derived from some advantage to performing certain functions in lower tax jurisdictions. For example, some corporations may price products or services at higher rates so that income in higher tax jurisdictions is decreased as a result of higher expense deductions, with these higher amounts being included in revenue of an entity in a lower tax jurisdiction. Some tax planning in this manner is appropriate, and often highly advantageous for competing successfully within our global economy. Transfer pricing rules are designed and in place to address unjustified skewing of profits and revenue toward lower tax jurisdictions.