When Bill C-208 received Royal Assent in June 2019, it marked a notable shift in Canada’s stance on tax avoidance and profit shifting, particularly where cross-border supply chains are concerned. The changes it introduced, especially to transfer pricing rules, were not revolutionary in isolation. But taken together, they represented a tightening of the net—an unmistakable signal to multinational subsidiaries operating in and out of Canada that business as usual was no longer good enough. The legislation’s language around arm’s-length pricing, while perhaps familiar, gained teeth through enhanced disclosure obligations and a more rigorous interpretation of intercompany arrangements.
The implications for supply chain finance teams, tax managers, and compliance officers were immediate. One could even argue that the legislation’s true impact wasn’t felt in boardrooms, where strategic tax planning decisions are made, but rather in the day-to-day operations of those tasked with mapping, documenting, and defending cross-border transactions. The spotlight fell, as it often does, on intercompany service fees—a murky area where ambiguities have long flourished. It became clear that simply asserting compliance with arm’s-length principles wouldn’t suffice. Companies now had to show, with data, how those principles were applied in practice.
Central to this task has been the use of the Canada Revenue Agency’s open transfer-pricing databases. These resources, often underutilized in the past, provide benchmarks that companies can use to compare their intercompany pricing against market standards. But as straightforward as that sounds, the process is anything but simple. Extracting relevant data, filtering it appropriately, and aligning it with internal transactions requires a level of analytical rigor that not all firms were initially prepared for. Some have had to invest in specialized tools or external advisors just to navigate the databases effectively. Others have tried to manage with existing internal resources, though often at the cost of increased workload and mounting frustration.
Mapping cross-border service fees is particularly fraught with challenges. The very nature of service transactions—intangible, variable, and often bundled—makes them difficult to pin down. What exactly constitutes a fair charge for shared IT support, or for regional management oversight? How should one allocate the cost of central marketing campaigns across jurisdictions? There are no easy answers, and Bill C-208, for all its clarity on expectations, offers little in the way of practical guidance. This ambiguity leaves room for interpretation, but also for error—something the CRA is increasingly unwilling to overlook.
To address these complexities, many firms have turned to revisiting their intercompany service-level agreements. This isn’t just a paperwork exercise. An SLA review, done properly, forces a company to articulate the scope of services provided, the rationale for pricing, and the methodology for cost allocation. And it’s here that gaps often emerge. Agreements drafted years ago, perhaps copied from templates or adapted piecemeal as circumstances changed, no longer withstand scrutiny. The language may be vague, the pricing formulas outdated, or the supporting documentation incomplete. In some cases, firms discover that no formal SLA exists at all—an oversight that, under the new legislative environment, is no longer defensible.
The process of conducting an SLA review can be revealing. It prompts difficult conversations between subsidiaries, between business units, even between finance and operations teams. And while the goal is ostensibly to ensure arm’s-length pricing, the exercise often exposes broader issues around governance, communication, and alignment of incentives. Companies that have successfully navigated this process tend to approach it not as a compliance box-ticking task, but as an opportunity to strengthen their internal controls and improve transparency across the board. That said, not every organization finds this transition easy. Resistance can arise, particularly where the review uncovers entrenched practices or highlights uncomfortable truths about the profitability of certain transactions.
Building a template for these SLA reviews has helped some firms bring structure to what might otherwise feel like an overwhelming process. A well-constructed template sets out, in clear terms, what needs to be assessed: the description of services, the basis for pricing, the frequency of review, the supporting documentation required, and the sign-off process. It also provides space to document how the agreed pricing aligns with the benchmarks drawn from CRA databases, and where judgment or discretion has been applied. In practice, of course, even the best template is only as effective as the discipline with which it’s used. But having a standard framework at least provides a starting point—something to guide teams as they work through the detail.
The broader context here cannot be ignored. Bill C-208 sits within a global movement toward greater tax transparency and fairness, driven by both public sentiment and coordinated efforts such as the OECD’s Base Erosion and Profit Shifting (BEPS) initiatives. Canadian firms, particularly those with significant international footprints, find themselves under growing pressure to demonstrate not just compliance, but a genuine commitment to responsible tax practices. The challenge is not just technical, but cultural. It requires a shift in mindset—from viewing transfer pricing as a defensive exercise to seeing it as an integral part of ethical supply chain management.
As with many regulatory changes, the true test of Bill C-208’s impact will emerge over time, as audits, disputes, and perhaps precedents accumulate. In the meantime, firms would do well to take its message seriously. The landscape has changed. Those who adapt quickly, with rigor and openness, are likely to find themselves better positioned—not only in the eyes of the CRA, but also of customers, investors, and the public at large.