As global tax standards evolve, Canadian businesses face a shifting landscape in transfer pricing compliance. Budget 2025 introduces updates aimed at aligning Canada’s rules with international standards, including those set by the Organisation for Economic Co-operation and Development (OECD). These changes bring new compliance expectations and significantly shorter timelines for documentation. For businesses engaged in cross-border transactions, understanding these developments is essential.
Transfer pricing continues to be a priority for the Canada Revenue Agency (CRA), particularly as global tax transparency and the OECD’s Base Erosion and Profit Shifting (BEPS) initiatives evolve. Recent Federal Budgets—including Budget 2025—have reinforced Canada’s commitment to aligning domestic transfer pricing documentation requirements with international best practices. These changes have significant implications for small and medium-sized private companies (SMEs) that engage in cross-border transactions with related entities. Budget 2025 proposes to update Canada’s transfer pricing rules to better align with international consensus on certain transfer pricing principals.
Budget 2025 introduces key changes that would reshape existing CRA administrative measures — and they could impact how your business handles transfer pricing compliance:
- The transfer pricing penalty that may be applied by the CRA only applies if the net transfer pricing adjustment exceeds the lesser of $5 million and 10 per cent of the taxpayer’s gross revenue. Budget 2025 proposes to provide an increase in the threshold for the transfer pricing penalty to apply from an assessment (from a $5 million transfer pricing adjustment to a $10 million adjustment);
- Transfer pricing documentation must currently be provided to the CRA within three months of receiving a written request. Budget 2025 proposes to reduce the time to provide transfer pricing documentation from three months to thirty days (the existing requirement for taxpayers and partnerships to make or obtain the appropriate records or documentation for a given year by their tax return filing due date would remain unchanged);
- Budget 2025 proposes a requirement that transfer pricing analyses apply the most appropriate transfer pricing method, as defined by the OECD Transfer Pricing Guidelines. This change increases the need for clear quantitative support and documentation around method selection. Rather than allowing for a range of acceptable methods supported by consistent financial analysis, the rule appears to require a definitive selection of one “most appropriate” methodology. This may heighten the potential for disputes with the CRA, as differences in interpretation of comparability, functional analysis, or financial benchmarks could lead to challenges over which method yields the most reliable results.
- Budget 2025 proposes to clarify certain transfer pricing documentation requirements and have the requirements better align with new definitions (and the requirements to select and apply the most appropriate transfer pricing method); and
- Budget 2025 proposes to provide simplified documentation requirements when prescribed conditions are met.
Implications for Small and Medium-Sized Private Companies
For SMEs, transfer pricing has often been considered a low-risk area due to limited international operations or smaller transaction volumes. However, the CRA is expanding its scrutiny of smaller taxpayers, particularly those involved in related-party loans, management fees, or intercompany service arrangements. As a result, SMEs are facing increased compliance obligations and pressure on internal resources in order to make sure detailed benchmarking analyses are prepared or maintained in order to satisfy the CRA expectation.
To ensure compliance with Canada’s evolving transfer pricing requirements, SMEs should begin by identifying all related-party transactions, including cross-border loans, royalties, management fees, cost-sharing arrangements, and intercompany transactions, while documenting the nature and purpose of each. Contemporaneous transfer pricing documentation should then be prepared or updated to describe the company’s business operations, intercompany dealings, functional analysis, and benchmarking to support that prices and terms are consistent with the arm’s-length principle. This analysis should be reviewed and updated regularly, with benchmarking refreshed every two to three years and financial data updated annually.
Understanding the Global Shift in Transfer Pricing Compliance
The Federal Budget reinforces Canada’s commitment to stricter transfer pricing compliance, reflecting global trends toward transparency and fair taxation. For SMEs, these changes mean more rigorous documentation requirements, tighter deadlines, and higher stakes for non-compliance.
By proactively identifying related-party transactions, maintaining contemporaneous documentation, and seeking professional guidance where needed, private companies can manage their transfer pricing risk and ensure alignment with CRA expectations.
These changes apply to taxation years beginning after Budget Day. As a result, SMEs should engage tax and accounting advisors early to assess compliance gaps and ensure proper support is in place.
Navigating the evolving landscape of transfer pricing and international tax compliance demands strategic insight.
At Crowe Soberman, our team helps private companies stay ahead of regulatory changes, minimize risk, and protect profitability. Connect with us today to strengthen your transfer pricing strategy and ensure your business is prepared for what’s next.
This article has been prepared for the general information of our clients. Please note that this publication should not be considered a substitute for personalized advice related to your situation.
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Adrianne Winter
Partner,
Valuations | Forensics | Litigation
Adrianne Markell Professional Corporation