Related-party goods purchases — transfer pricing: do I need an adviser, or can I do it alone?
Some of it, yes — and we will say so on the call if that is the honest answer. The parts that are worth paying for are the ones where a missed election, a missed deadline or an unverified threshold costs more than the fee: the tax authority tests whether the price left an arm's-length margin in the right country; the customs authority tests whether the declared value was right for duty.
What if I have already filed and got it wrong?
That is a common starting point. We re-derive the position, identify whether an amendment or a disclosure route is the right vehicle, and tell you which one preserves the relief that is still available. The order matters more than the speed.
How long will it take?
It depends on the documents rather than on us. Once the pack is complete most filings turn around inside a fortnight; anything that needs a certificate from a tax authority runs on that authority's timetable, which we tell you at the start rather than at the end.
Can we use the same price for customs value and transfer pricing?
Often the same figure is declared to both, but the two authorities are not asking the same question and neither is bound by the other's answer. The tax side tests whether the price left an arm's length margin in the right country across the year. The customs side tests whether the value declared was the right basis for duty on that shipment, at the moment it crossed the border. One is a full-year outcome, the other is transaction by transaction. A single price can satisfy both, but it satisfies them for different reasons, and the evidence each authority wants to see is different.
Do we have to tell customs about a year-end transfer pricing adjustment?
This is the point at which the two regimes collide. An adjustment posted after the year end changes what was paid for goods that have already been imported and valued. Where it lowers the price, the question is whether duty was overpaid and whether a correction is available; where it raises the price, the value declared at the border may have been short. Treat an adjustment as an event with two consequences rather than as a single accounting entry, and settle the customs treatment at the same time as the tax one. Leaving it to be discovered later is how a routine adjustment becomes a review.
What documentation supports the price we pay our parent for goods?
A functional analysis of who does what, bears what risk and owns what across the supply chain; a method chosen and explained; a search for comparable dealings; and an intercompany agreement that reflects all of it. The order matters. The analysis comes first and the agreement is written to match it, not the other way round. The commonest weakness is not the absence of a study but a study that describes a group the company no longer is, because risk has moved or functions have been centralised since, and the file was never brought up to date.
Customs says our relationship influenced the price, so how do we answer?
With evidence about the price itself, rather than assertions about the group. On what basis was the price set, and would a buyer at arm's length have paid it for that product, in that quantity, on those terms? Sales of identical or similar goods, the resale margin achieved here, and the supplier's own cost build-up are the kinds of material that speak to it. A transfer pricing study can form part of the answer, because it addresses the same commercial facts, but it was written to answer a different question and rarely stands on its own.
Is a thin resale margin a transfer pricing problem?
It is a question worth answering before it is asked. A distributor that takes little risk is not expected to earn much, so a modest margin can be exactly right, but it has to be consistent with what the entity actually does. Where the Canadian company carries the inventory, funds the marketing, handles warranty claims and takes the currency risk, a routine distributor return does not match that profile. The test is whether the margin left in each country corresponds to the functions performed and the risks genuinely borne there, and whether the intercompany agreements say the same thing.
Does a transfer pricing study satisfy a customs valuation review?
Not on its own. It is relevant material and worth putting in, but it answers a full-year, profit-level question using a method chosen for that purpose, while a valuation review is about the price of a shipment. Studies are usually written without reference to duty at all, and it shows: the product groupings are too broad, the periods do not line up with the entries, and adjustments are discussed in aggregate. Where both authorities are likely to look, prepare the file with both in mind from the start rather than repurposing one for the other.
What does a transfer pricing benchmarking study do?
It evidences that your related-party pricing sits within the range independent parties achieve. The work is comparison: identify companies or transactions genuinely similar in function, risk and assets, compute their margins, and show where your result falls against that range. Done before the filing deadline it supports the position; produced afterwards under audit it carries far less weight. See benchmarking study.
Can you give a plain transfer pricing example?
A Canadian company manufactures at a cost of one hundred and its US subsidiary sells to customers for one hundred and eighty. If the parent invoices the subsidiary at one hundred and ten, most of the margin is taxed in the United States; invoice at one hundred and seventy and most of it is taxed in Canada. Nothing about the business changed — only which treasury collects. That is why the arm's length price, the one unrelated parties would have agreed, is the reference point both authorities use. See our transfer pricing work.
