What seems like “all in the family” to private companies expanding into foreign markets and incorporating subsidiaries in those markets, is viewed quite diffently by the Canada Revenue Agency.
One often ignored area is intellectual property, such as trademarks, know-how and business processes. Canadian companies often don’t realize that their foreign susidiaries must pay fees to them for using this property. Even though a corporate group and its foreign subsidiaries have common ownership, those subsidiaries are separate legal entities and the CRA expects the Canadian company to charge them reasonable fees for use of its IP, otherwise when the CRA arrives to audit the companies it can be costly.
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Rob Davis is a partner in transfer pricing tax with
KPMG Enterprise in Toronto.