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The short answer
When a Canadian company deals with a related Nigerian company, the price must be the one unrelated parties would agree on: the arm's-length principle in section 247 of the Income Tax Act. The CRA expects contemporaneous documentation prepared by your filing due date, and can apply a 10% penalty on adjustments above a threshold, now the lesser of $10 million or 10% of gross revenue. Nigeria applies its own transfer pricing rules on the other side.
Why transfer pricing applies to small groups too
Many diaspora founders run a Canadian company with a Nigerian sister company: developers in Lagos, a sales office in Abuja, a brand owned in one place and used in the other. Every invoice between them sets how much profit each country taxes. If the Canadian company pays too much for Lagos services, Canadian profit falls; if it charges too little for a licence, Nigerian profit rises. Both tax authorities care, which is why the rules apply whatever the size of the group.
The arm's-length principle
The CRA's transfer pricing page (modified May 2026) describes the principle simply: "the terms and conditions should be identical" whether or not the parties are at arm's length. Compliance is generally assessed by comparing your prices or profit margins with those of unrelated parties in similar transactions. Section 247 of the Income Tax Act is the Canadian rule. The CRA notes that Bill C-15, which received Royal Assent on 26 March 2026, introduced a single operative adjustment rule for taxation years beginning after 4 November 2025.
| Typical Canada–Nigeria dealing | The arm's-length question |
|---|---|
| Lagos team provides software development to the Canadian company | What would an unrelated development firm charge, or what mark-up on cost is normal? |
| Canadian company licenses its brand or software to the Nigerian company | What royalty would an independent licensee pay? |
| Canadian company lends to the Nigerian company | What interest rate and terms would an unrelated lender offer a borrower of that risk? |
| Shared management or head-office costs | Is there a real benefit to the company charged, and is the allocation key reasonable? |
| Goods sold between the companies | What price would an unrelated buyer pay for the same goods? |
Documentation the CRA expects
Taxpayers must prepare or obtain contemporaneous documentation by their filing due date; it is not sent with the return. The CRA page gives two different figures for how quickly it must be handed over on request: its body text says three months from a written request, while its "What's new" section says this was reduced to 30 days. Plan for the shorter period. The documentation usually covers:
- The companies, their ownership and the transactions between them.
- The functions each company performs, the assets it uses and the risks it bears.
- The pricing method chosen and why.
- The comparable data relied on and the calculation.
- The intercompany agreements, signed and dated.
For a small group, the commonest approach to intercompany services is a mark-up on the cost of the team providing them, supported by evidence of what similar independent providers earn. Whatever method you choose, write it into a signed intercompany agreement before the work starts, invoice to it every month or quarter, and settle the invoices in cash. Agreements written after a CRA letter arrives carry little weight.
The CRA's transfer pricing memoranda, including TPM-05R2 on documentation requests and TPM-09 on reasonable efforts, set out its approach in more detail.
Penalties
Where reasonable efforts were not made to determine and use arm's-length prices, the CRA can apply a penalty of 10% of certain adjustments. Under the amendments, the penalty is considered only when adjustments exceed the lesser of $10 million or 10% of gross revenue.
Example only. A Canadian company with $2.5 million of gross revenue has a threshold of $250,000 (10% of $2.5 million, which is less than $10 million). If the CRA adjusted its intercompany charges by $320,000 and found no reasonable efforts, a penalty would be in play, in broad terms 10% of the adjustment, about $32,000, on top of the tax itself. Contemporaneous documentation is what shows reasonable efforts.
The Nigerian side
Nigeria has its own transfer pricing regulations, administered by the Nigeria Revenue Service (formerly FIRS), with their own documentation and filing requirements for connected-party transactions. We did not open their current text for this article, so ask a Nigerian adviser about Nigerian deadlines and forms. A Canada–Nigeria tax treaty has been in force since 16 November 1999, which is the framework for relief if both countries adjust the same transaction. Pricing that one side accepts and the other rejects leads to double taxation, so it pays to use one method and one set of facts for both.
Reporting the dealings
Separately from documentation, a Canadian corporation reports its transactions with non-arm's-length non-residents on Form T106 once they exceed $1,000,000 in the year; see Form T106: reporting dealings with a Nigerian affiliate. Royalties paid to the Nigerian company also attract Part XIII withholding; see Part XIII tax on royalties paid to a Nigerian company. This is information, not tax advice.
Where Pryme fits
Intercompany payments are easier to evidence when each one has an invoice and a clear payment record. Invoicing and a Pryme Business Account holding NGN, USD, GBP and EUR keep both sides of the trail, and the Compliance agent can prepare a monthly list of intercompany transactions for your adviser; a person approves anything that moves money.
Questions people ask
Does transfer pricing apply to small companies?
Yes. Section 247 applies to non-arm's-length transactions with non-residents regardless of size, although the penalty threshold, the lesser of $10 million or 10% of gross revenue, means small adjustments may not attract the penalty.
What documentation do I need for transfer pricing in Canada?
Contemporaneous documentation prepared by your filing due date, describing the transactions, functions, method and comparables. The CRA page gives both three months and 30 days for providing it on request, so plan for 30.
What changed in Canadian transfer pricing in 2026?
Bill C-15, with Royal Assent on 26 March 2026, introduced a single operative adjustment rule for taxation years beginning after 4 November 2025 and changed the penalty threshold (CRA, May 2026).
Does Nigeria have transfer pricing rules?
Yes, administered by the NRS. Ask a Nigerian adviser for the current documentation and filing requirements.
Sources
- CRA: Transfer pricing (modified 6 May 2026) · accessed Oct 2026
- CRA guide T4012, T2 Corporation Income Tax Guide, chapter 2 (28 May 2026) · accessed Oct 2026
- Publications.gc.ca: Canada–Nigeria agreement for the avoidance of double taxation (signed 4 Aug 1992, in force 16 Nov 1999, CTS 1999/48) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.