Helping a Canadian manufacturer scale into the US
The client
The client (CanCo) is a Toronto‑based, Canadian‑owned manufacturer of parts for industrial systems. With approximately $15 million in revenue, the company planned its first physical international expansion by establishing an incorporated US distribution center. CanCo’s leadership wanted a compliant, scalable intercompany transfer pricing (TP) framework that wouldn’t complicate the business at its current size—yet would stand up to CRA and IRS scrutiny as volumes grew.
*Case study generalized to protect confidentiality of our client.
The challenge
CanCo’s expansion raised typical cross‑border tax and TP questions for a growing business:
- How to price intercompany product sales to the new US distributor so it earns an appropriate expected return, without inappropriately shifting profits.
- Whether to charge for management support, logistics coordination, and back office functions undertaken at head office, and how to do so without creating unnecessary complexity and administrative burden.
- How to implement the policy operationally and legally (including invoicing, accounting, and legal agreements) with a small accounting team and outside counsel.
- How to document everything contemporaneously to satisfy CRA and IRS expectations, while keeping the records proportionate to materiality and internally maintainable.
Our approach: Rapid, practical, and scalable
We began with a focused information-gathering exercise designed to establish a clear understanding of the proposed supply chain and operating model without placing a heavy burden on management. Through approximately three hours of structured discussions with key personnel, we obtained the information necessary to assess the group’s functions, assets, and risks across jurisdictions.
For Canada, this included understanding the manufacturing and sourcing activities, inventory and customer risk, contractual relationships, and IP ownership. For the United States, we considered the scope of the planned sales function, marketing activities, and the use of third-party warehousing and logistics providers. Based on these discussions, we mapped the expected intercompany flows for goods and services and identified the principal transfer pricing and tax considerations arising from the proposed structure.
STEP 1: Planning
STEP 2: Implementation
STEP 3: Documentation
Results
CanCo now has a transfer pricing framework that is aligned with both CRA and IRS expectations and supported by contemporaneous documentation. The policy, implementation, and documentation are consistent with how the business operates today and scalable as volumes grow, reducing exposure to audit adjustments and penalties.
Equally important, the resulting framework was designed to be maintained internally. With clear controls, simple tooling, and proportionate documentation, CanCo’s finance team can operate and refresh the transfer pricing model on an ongoing basis with limited incremental effort, revisiting the structure only as the business undergoes further expansion or change.
