Transfer pricing describes price at which service and goods are traded across international borders between related or non-arm’s length parties, such as company divisions or a parent company and a subsidiary.
Transfer pricing presents an opportunity to manipulate profits. It is often used by multinational corporations to minimize their tax bills, a practice that has long been a headache for Canadian tax authorities.
Transfer pricing concerns are not necessary restricted to international transactions. The manipulation of profits between provinces within Canada will alter the inter-provincial profit allocations and will affect provincial tax revenues.