TP is Everywhere: Not Just for Big Companies

Many assume that Transfer Pricing is only for multi-billion dollar organizations, but that’s just not the case. Opportunities can be significant, even for small businesses.? Say you’re a million dollar company that happens to have 500K in US revenue and 500K in Canadian revenue due to one significant Canadian client.? If your Canadian operations consist of one part-time salesperson, you might have 100K in expense and 400K in profit taxed at (roughly) 28%, while the majority of your design, development, and production operations in the US result in US expense of 600K and US loss of 100K. ? So, your million dollar US based company is facing losses in the US but paying tax in Canada.

The good news is that tax rules in the US and Canada recognize this imbalance and transfer pricing can be used as an effective mechanism to abate your risk.? For example, through the production of appropriate transfer pricing documentation and support, Canadian pre-tax income might be reduced to 25K, efficiently moving 375K in income to the US where the 100K loss would be offset and the appropriate amount of tax paid, increasing the overall profit to the company.

If you or your client is facing circumstances where taxable income does not align, please be in touch.? We love to assist with fact patterns like this, whether a formal transfer pricing project is created or not.? And for US compliance technically the first dollar made elsewhere is cause for transfer pricing strategy and documentation.