Demonstrating Technology to the Canada Revenue Agency


A Fortune 500 Company with Headquarter Operations in the US, has a substantial Canadian subsidiary which manufactures and distributes industrial products. There are multiple manufacturing and distribution locations across Canada. The Canadian subsidiary has operated in Canada for over 100 years.

Business Challenge

The technology required by the Canadian subsidiary has been developed and continues to be developed by two non-Canadian related parties. The CRA disallowed the royalty payment from Canada in its entirety based on minimal considerations of key business realities. The company wanted to review the transfer pricing policy to determine the feasibility of alternative transfer pricing methods that link specific technology to specific product groupings to better support the use and value of technology used by Canada. In addition, the Canadian subsidiary is very profitable and has earns substantially higher margins to that of their peer group which adds to the perplexity of the CRA’s basis of reassessment.


An alternative transfer pricing approach was designed, implemented and documented that identified specific technology in use by specific product types and to specific manufacturing locations. Each location and product was tied to specific patents held by the non-Canadian related parties and specific examples were documented. Multiple criteria for each manufacturing location were indexed, and specific rates for technology priced on a per unit basis were assigned to each manufacturing location.


As with many disputes with the Canada Revenue Agency, it continues to remain unresolved and they are awaiting a hearing within the Canadian dispute process. The new transfer pricing method has collected and cataloged evidence that support the value and presence of technology used by the Canadian subsidiary. In addition, there are ongoing discussions with other global entities of the multinational group on the merits of the alternative transfer pricing method.