2017-0691191C6 IFA 2017 Q.2: Subsection 247(2) and FAPI

Principal Issues: Whether subsection 247(2) applies in computing a foreign affiliate's foreign accrual property income in the context of a transaction between the foreign affiliate and another non-resident person.

Position: Yes

Reasons: See response below

Author: Tu, Grace
Section: Subsection 247(2); paragraph 95(2)(f.11); section 80.4

2017 International Fiscal Association Conference
CRA Roundtable

Question 2 - Application of Section 247 in the Computation of FAPI

Canada’s transfer pricing rules, contained in section 247, apply in a variety of circumstances in respect of transactions with non-arm’s length non-residents and can adjust amounts relevant for Canadian tax purposes to reflect arm’s length terms and conditions.

Does the CRA consider section 247 to apply in computing a foreign affiliate’s foreign accrual property income (“FAPI”) in respect of a taxpayer, in the context of a transaction between the foreign affiliate and another non-resident person?

CRA Response

It has been the CRA’s long-standing view that subsection 247(2) could, in general, apply to a transaction between a foreign affiliate and another non-resident person in computing the foreign affiliate’s FAPI in respect of a taxpayer.  However, if the pricing of a transaction entered into by the foreign affiliate has been reviewed by the tax authority of the country in which the foreign affiliate is resident and has been determined to be in accordance with the transfer pricing legislation or guidelines of that country, the CRA will generally not challenge the pricing determined based on such legislation or guidelines provided that such legislation or guidelines adopt the arm’s length principle.

Information Circular IC 87-2R International Transfer Pricing, dated September 27, 1999, including the comments therein regarding the computation of FAPI, are currently under review.

Grace Tu
Olli Laurikainen
2017-069119
April 26, 2017

Response prepared in collaboration with:

Mark Turnbull
International Tax Division
International, Large Business and Investigations Branch

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