Can CRA charge a penalty if we already agreed the adjustment?
The adjustment and the penalty are separate charges. Agreeing the adjustment settles how much profit Canada will tax; it does not answer whether a penalty arises on top of it. In practice the two are argued on different ground. The adjustment turns on pricing, meaning what independent parties would have agreed for the same functions and risks. The penalty turns on records: whether the pricing was documented at the time, in enough detail for someone else to follow the reasoning. A file can lose the first argument and still keep the second, and that is often where the larger amount sits.
Does having a transfer pricing study protect us from a penalty?
Only if the study actually covers the transactions under examination and was prepared when they were priced. Three failures recur. The study describes a method but names no comparables, so the conclusion cannot be checked. It covers the goods flow and says nothing about the management charge or the intercompany balance, which are the items queried. Or it was written for the group as a whole and never applied to the Canadian entity's own functions. A document that does not let a reader reconstruct how the price was set is not doing the job the legislation asks of it.
We prepared our documentation after CRA asked, is that too late?
For the penalty question, yes: records written in response to a query do not make the pricing contemporaneous, however good the analysis is. That does not make the exercise pointless. The same work supports the pricing argument itself, and it lets you show what the company actually did at the time, such as costs recorded, decisions minuted and invoices raised, as opposed to what a later analysis concludes. We keep the two firmly apart on the file: evidence of the contemporaneous position, and current analysis offered as analysis. Presenting the second as the first invites the penalty rather than answering it.
Is our group master file enough documentation for Canada?
It is usually a start and rarely the whole answer. A master file is written to describe a group: where the business sits, how profit is said to arise, what the policy is. Canada's question is narrower. What did this company do, with whom, on what terms, and why was that price chosen. The local answer needs the Canadian entity's own functions, the transactions it entered in the year, and the analysis behind each one. Where a group file exists we map it against the local transaction list first, and the gaps in that list are usually the exposure.
Do intercompany management fees attract a transfer pricing penalty?
They are a frequent trigger, because the charge is easy to book and hard to evidence. The questions asked are always the same: what was done, by whom, for whose benefit, and how was the amount arrived at. A fee set as a share of turnover, or as a round monthly figure with no record of the underlying work, has no pricing analysis behind it at all. So if the deduction is reduced, there is nothing to answer the records question with. Time records, deliverables and a written basis for the charge are what keep the two issues separate.
If the other country reduces its profit, does the penalty go away?
No. Relief in the other country addresses double taxation, the same profit being taxed twice, and it is obtained separately, usually through the treaty procedure. The penalty is about the state of your records when the price was set, and a foreign authority agreeing to follow Canada's number says nothing about that. We run the two tracks side by side and keep them distinct in correspondence, because arguments made to obtain relief abroad are read back in Canada, and a submission conceding that the pricing was never analysed can make the records position worse.
Do I pay tax when I inherit property abroad?
The inheritance itself is often not income to you, but three other things can create tax: the estate may owe tax where the deceased or the property was situated, some countries tax the recipient directly, and the gain from the date you inherit to the date you sell is yours. Reporting obligations can also attach to holding the asset. See inheriting property abroad.
Do I have to file in both countries?
Frequently yes, and the two filings do different jobs. The country where the income arises taxes it at source; the country where you are resident taxes your worldwide income and then gives credit for the tax already paid. Filing only one side is what leaves relief unclaimed — the credit has to be asked for on a return. We prepare both sides so the numbers agree. See dual filing.
