CRA Insights

To mark up intra-group services or not, that is the question

June 18, 2012

The Canada Revenue Agency takes the position that a markup on administrative and technical services is generally not warranted where intra-group services are provided to members of a related corporate group by a particular member of the group, where the services are ancillary in nature to the main function of the service provider, and where the particular service provider does not provide such services to arm’s length parties with a view to making a profit, in accordance with the OECD guidelines and the provision of IC 87-2R.
However, the OECD guidelines, the IC 87-2R, and the Agency’s audit position are inconsistent, therefore, it is not surprising that foreign multinationals face significant uncertainty when addressing the issue of whether to apply a markup on the charges transferred to Canadian subsidiaries for intra-group services. It is incumbent on the Agency to provide further guidance on this issue to reduce taxpayer uncertainty and reduce the associated administrative burden.
In his article, CRA presents three examples to illustrate that Canadian taxpayers still benefit from the centralization of backoffice ancillary services, despite the presence of a markup on allocated costs.

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