This hierarchy is not legislated, but is established within the guidelines for applying transfer pricing rules set out in Information Circular 87-2, International Transfer Pricing. For income tax transfer pricing, the Canada Revenue Agency (CRA) is of the view that there is a natural hierarchy, starting with the Comparable Uncontrolled Price Method, then progressing to the remainder of the traditional transaction methods, and finally considering the transactional profit methods. When the Transaction Value Method is not appropriate, a series of other methods must be considered in a specific order. The Transaction Value Method is the primary method used when goods have been 'sold for export to a purchaser in Canada' and a number of other conditions have been met. For customs valuation there is a legislated priority rule for selecting the method to be used in determining the value for duty of the imported goods. The application of a proper methodology is also an important concept applied in both programs. '… the arm's length principle, which is the international transfer pricing standard that OECD Member countries have agreed should be used for tax purposes by multinational enterprise groups and tax administrations.'Ĥ.'The arm's length principle is applied, broadly speaking, by many customs administrations as a principle of comparison between the value attributable to goods imported by associated enterprises and the value for similar goods imported by independent enterprises,' and.

The arm's length principle is an important concept applied in both programs, as evidenced by the Organisation for Economic Co-operation and Development (OECD), Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, (the OECD Guidelines) which states: There are conceptual similarities in the objectives and policies of customs valuation and income tax transfer pricing.

Income tax transfer pricing refers to the determination of the prices at which services, tangible property, and intangible property are traded across international borders between related parties under the Income Tax Act.ģ. Customs valuation refers to the determination of the value for duty of imported goods under the Customs Act. This document outlines the similarities and differences between valuation for customs purposes (customs valuation) and transfer prices for income tax purposes (income tax transfer pricing), specifically in relation to the international transfer of goods between related parties. The purpose of this information circular is to address taxpayers' question 'Why can't the same transfer price used for income tax purposes be used for customs purposes?'Ģ. For purposes of this section, the Secretary shall require the valuation of transfers of intangible property (including intangible property transferred with other property or services) on an aggregate basis or the valuation of such a transfer on the basis of the realistic alternatives to such a transfer, if the Secretary determines that such basis is the most reliable means of valuation of such transfers.1. In the case of any transfer (or license) of intangible property (within the meaning of section 367(d)(4)), the income with respect to such transfer or license shall be commensurate with the income attributable to the intangible. In any case of two or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, the Secretary may distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among such organizations, trades, or businesses, if he determines that such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations, trades, or businesses.

Irs transfer pricing