Transfer Pricing Under Pressure

How the CRA Is Raising the Stakes for Canadian Businesses

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Transfer pricing has become one of the Canada Revenue Agency’s (CRA) most active areas of scrutiny. The CRA is not only auditing more aggressively but also taking firmer positions – making it increasingly difficult for companies to reverse those decisions once they’re made.

At its core, transfer pricing refers to how related companies price transactions across borders. From the CRA’s perspective, the central issue is whether profits that should be taxed in Canada are being shifted elsewhere. What’s changed in the current marketplace is how specifically - and persistently - the CRA is challenging that.

A Tougher Stance on Downward Adjustments

One clear trend is the CRA’s resistance to downward adjustments - reductions in taxable income or increases to losses/capital expenses that would shift income to a foreign jurisdiction.

Dow Chemical Canada (2024)¹: the Supreme Court confirmed that the CRA has broad discretion in these matters, and that challenging those decisions is not straightforward.
MEGlobal Canada²: the CRA denied an adjustment aimed at avoiding double taxation - highlighting that relief is far from automatic, even where the outcome seems reasonable.

These cases signal that the CRA is increasingly unwilling to accept adjustments that reduce Canadian taxable income.

^₁_{Dow Chemical Canada ULC v. Canada, 2024 SCC 23 (CanLII).}

^₂_{MEGlobal Canada ULC v. His Majesty the King, 2025 TCC (CanLII) — decision released March 26, 2025 (Tax Court of Canada).}

Heightened Focus on Intercompany Services and Management Fees

Intercompany services remain a major audit hotspot. In the ongoing ExxonMobil Canada Resources case³, the CRA is scrutinizing whether the Canadian entity actually received a benefit from services charged by related parties. This reflects a common audit theme: documenting a charge is not enough - the CRA wants clear evidence of value and business purpose.

^₃_{ExxonMobil Canada Resources Company v. Canada (Tax Court of Canada, ongoing proceeding).}

Intellectual Property and Royalty Payments Under the Microscope

Intellectual property and royalty payments are also firmly in scope. The Owens Corning Canada case⁴ illustrates how the CRA is approaching cross-border payments tied to intangible assets, particularly where profits flow out of Canada. The CRA is increasingly focused on whether the Canadian entity’s functions justify the level of income it retains—particularly when development, strategic decision-making, or other key activities occur in Canada.

^₄_{Owens Corning Canada LP v. Canada (Tax Court of Canada, ongoing proceeding).}

A Shift in How Transfer Pricing Disputes Unfold

These cases highlight a broader shift: the CRA is not just challenging pricing—it is asserting greater control over the dispute process itself. Once the CRA takes a position, unwinding it can be difficult and time-consuming, often requiring litigation across multiple courts.

At the same time, legislative changes are reinforcing this direction. Recent federal proposals signal an intent to strengthen Canada’s transfer pricing rules and align them more closely with global standards.

This means:

More robust documentation
Deeper economic analysis
Higher expectations that transfer pricing outcomes reflect real economic activity

What This Means for Canadian Businesses

For Canadian businesses, the message is clear. Transfer pricing is no longer a compliance exercise that can be addressed after the fact.

The CRA is focusing on specific, high-risk areas, including:

Intercompany services
Financing arrangements
Intellectual property
Adjustments that reduce Canadian income

In today’s environment, the question isn’t just whether your transfer pricing works on paper. It’s whether it can withstand a detailed review by a CRA that is increasingly prepared and empowered to challenge it.

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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