Daimler and Transfer Pricing
According to a report in the February 28, 2011 edition of the Globe and Mail, Daimler AG will pay approximately US$1.5 billion in taxes to the CRA, the Ontario Ministry of Revenue, and Alberta Tax and Revenue Administration. This very large payment to the Canadian tax authorities related to their position that the Canadian arm of Daimler/Chrysler under reported Canadian income for tax purposes. This is one example of a trend that multinational corporate groups must monitor carefully.
Each transfer of a good, a service, an intangible such as a product or component, a management fee, or a trademark license must be priced between members of a related or multinational corporate group at its “arms length” value. This is required under the Canadian Income Tax Act and the laws of most other countries.
Daimler/Chrysler was assessed huge amounts of tax on the view that the pricing favoured the US operations by pricing goods, services, and intangibles supplied to the Canadian operations at prices higher than their “arms length” values. These higher prices will have flowed into the US tax returns; therefore, the Canadian assessments create a “double tax” situation. Complex provisions under the Canada-US tax treaty must be accessed to sort out these double tax issues or the double tax absorbed.
Transfer pricing is a complex area of international tax law. TaxChambers LLP can provide sophisticated advice from leading practitioners in this difficult area.