How Transfer Pricing Affects Your Imported Goods

Last Updated: March 30, 2026

T​​​​​​ransfer pricing is an important concept in international business and finance. It refers to the price set for goods and services exchanged between two entities that constitute part of the same corporate group or multinational enterprise (MNE). Transfer pricing allows companies to allocate taxable income across different countries, which can help with tax planning strategies. In this article, we’ll walk you through everything you need to know about Transfer Pricing.

What is Transfer Pricing?

At its core, transfer pricing is based on setting a fair market price for goods and services exchanged between related parties. The ‘arm’s-length principle‘ is used to ensure that transactions are conducted at such a rate as if they were dealing with unrelated parties. This means that prices should reflect what would be expected in a transaction between independent businesses, eliminating any form of profit shifting between related parties.

For example, a multinational textile manufacturer has multiple divisions, one producing fabric in Europe and another creating shirts in Canada. The Fabric Division sells fabric to both its related Shirt Division and unrelated clothing manufacturers. The company needs to consider whether the price charged to the Canadian entity reflects an arm’s-length outcome based on the facts and circumstances of the transactions.

Transfer pricing does not simply mean choosing a lower or higher price to reduce taxes or customs duties. Canadian taxpayers must determine and use an arm’s-length transfer price for qualifying transactions, and the Canada Revenue Agency (CRA) can adjust the taxpayer’s income when the conditions of a transaction do not reflect arm’s-length conditions. The CRA provides current guidance on Canada’s transfer pricing rules.

Why Transfer Pricing matters

The necessity for transfer pricing arises because MNEs often have operations in multiple countries across the globe, subjecting them to different nations’ tax laws and regulations. Transfer pricing helps with taxation by mapping out a company’s profits based on their global operations while ensuring they pay their fair share of taxes in each country where they conduct business. In other words, it acts as an internal profit allocation tool within an MNE.

In addition to helping with taxation, transfer pricing also helps companies maximize profits from their global operations by improving operational efficiency. Companies use this system to coordinate activities across different subsidiaries worldwide, allowing them to benefit from economies of scale and optimize resources more efficiently without worrying about cross-border taxation issues or unfair advantages gained through improper revenue sharing amongst subsidiaries.

Why is Transfer Pricing adjustment important?

Transfer pricing adjustment is an important tool for corporations, especially international ones, as it allows them to align their global strategy with their economic and fiscal objectives. It enables companies to determine the most profitable way to transfer goods and services, as well as profits and losses, among different entities located in multiple countries that are part of one larger organization. This adjustment process should be considered part of a company’s overall financial planning and management process.

This approach can reduce potential costs from taxes, tariffs, currency fluctuations, or other external factors that may influence business operations worldwide. Transfer pricing adjustment also allows companies to manage risk more effectively by balancing the differences between local market prices and agreed-upon transfer prices among subsidiaries. In addition, it helps promote transparency between different regions within a company, given that each subsidiary has access to data from all other subsidiaries or branches. Due to the complexity of transfer pricing assessments and regulations, it is important for companies to partner with experienced advisors who can provide detailed knowledge about tax laws in various jurisdictions to maximize the efficiency of the entire process.

All in all, transfer pricing adjustment is an integral component of any successful multinational corporation’s financial planning and control processes since it serves as a mechanism by which they can better manage their tax burden across countries while still meeting their strategic objectives.

When do Canada’s Transfer Pricing rules apply?

Canada’s transfer pricing rules apply when:

• There are two or more entities involved.
• At least one of the involved entities is a Canadian taxpayer. This includes certain non-resident entities that are taxpayers for Canadian tax purposes.
• The transaction is cross-border and involves Canada.
• The Canadian taxpayer and at least one of the offshore parties are not dealing at arm’s length.
• The parties enter into a transaction or series of transactions.

The CRA provides additional information about when Canada’s transfer pricing rules apply.

Canada updated its transfer pricing rules through Bill C-15, Budget 2025 Implementation Act, No. 1, which received Royal Assent on March 26, 2026. The changes apply to taxation years beginning after November 4, 2025.

The updated framework introduces a single operative adjustment rule and modifies the contemporaneous documentation requirements. The CRA also states that the revised rules align Canada’s transfer pricing framework more closely with the OECD Transfer Pricing Guidelines.

Transfer Price study

To support the arm’s-length principle, companies should prepare and maintain appropriate transfer pricing documentation for their qualifying transactions. The documentation should explain the transaction, the relevant facts and circumstances, and the methodology used to determine the arm’s-length outcome.

A transfer pricing study may remain useful over multiple years when the relevant facts and circumstances remain substantially unchanged. However, companies should review their analysis when material changes occur to their business, transactions, functions, assets, risks, market conditions, or pricing arrangements.

The Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines provide an international framework for applying the arm’s-length principle. Canada’s updated rules also include measures intended to align the application of the arm’s-length principle with the OECD Guidelines. The CRA provides updated information on transfer pricing documentation.

For Canadian taxpayers, the documentation requirements also changed in 2026. The CRA states that the timeframe for providing requested contemporaneous documentation has been reduced from three months to 30 days. The revised rules also raise the threshold for transfer pricing penalty consideration to the lesser of $10 million or 10% of gross revenue and introduce simplified documentation measures when prescribed conditions are met.

As an importer, it is also important to know the aggregate payments made or payable for imported goods. Under the transaction value method, the value for duty generally starts with the price paid or payable for goods sold for export to Canada, provided the requirements of that method are met. CBSA’s guidance on the transaction value method for related persons explains the additional considerations that apply to related-party transactions.

Adjustments

Adjustments to the value for duty reported to CBSA may be required when an importer has reason to believe that a declaration is incorrect.

Under section 32.2 of the Customs Act, an importer generally has 90 days after having reason to believe that a declaration is incorrect to make a required correction. CBSA’s guidance on reason to believe and corrections explains how the correction requirement applies to declarations of value for duty.

CBSA also provides specific guidance for transfer price adjustments. An importer can make a correction within 90 days after a transfer price adjustment occurs, such as a quarterly adjustment, or wait until the net total of transfer price adjustments for the fiscal period becomes available, depending on the circumstances.

Importers should monitor transfer price adjustments and determine whether they affect previously declared values for duty. A vendor invoice showing a retroactive price increase, for example, can provide information that gives an importer reason to believe a previous declaration is incorrect. CBSA identifies information received from vendors and suppliers as one potential source of information that can trigger the correction obligation.

Penalties

If adjustments are required, importers may face Administrative Monetary Penalties (AMPs) for failing to make required corrections within the applicable 90-day period after having reason to believe that a declaration was incorrect.

C083 applies when an authorized person fails to make the required correction to a declaration of value for duty within 90 days after having reason to believe that the declaration was incorrect. C353 applies when an authorized person fails to pay duties resulting from a required correction within 90 days after having reason to believe that the declaration was incorrect. The CBSA’s current C083 guidance and C353 guidance provide the applicable penalty structures.

Under C083 and C353, the current penalty amounts are:

• First occurrence: $500 to a maximum of $5,000 per issue or $25,000 per occurrence
• Second occurrence: $750 to a maximum of $200,000 per occurrence
• Third and subsequent occurrences: $1,500 to a maximum of $400,000 per occurrence

The applicable amount depends on the circumstances and whether CBSA assesses the penalty on a per-issue or per-occurrence basis.

C083 generally applies when a required correction does not result in customs duties or taxes owing. When customs duties or taxes are payable as a result of the correction, C353 applies instead. CBSA states that C083 and C353 do not apply together for the same contravention.

Separately, Canada’s income tax transfer pricing rules contain their own penalty provisions. The CRA states that the 2026 amendments raised the threshold for transfer pricing penalty consideration to the lesser of $10 million or 10% of gross revenue.

These customs and income tax penalties address different compliance obligations. An importer therefore needs to consider both regimes when a transfer pricing adjustment affects imported goods.

To support compliance, companies should document their transfer pricing decisions and maintain records that explain how they determined their arm’s-length pricing and customs value.

Conclusion

Transfer pricing helps multinational companies establish prices for transactions between related entities while complying with Canada’s arm’s-length principle. For importers, transfer pricing can also affect customs valuation and may require corrections when adjustments change the value for duty.

Companies importing from related foreign entities should review their transfer pricing and customs valuation processes together to help avoid additional duties, interest, and penalties.