Principal Issues: (1) How, if at all, is gross revenue to be adjusted when there is a transfer pricing adjustment when a Canadian resident purchases goods or services from a non-resident at an amount in excess of what would have been agreed to between persons dealing at arm's length?
(2) How, if at all, is gross revenue to be adjusted when there is a transfer pricing adjustment when a Canadian resident sells a good or provides a service to a non-resident at an amount less than what would have been agreed to between persons dealing at arm's length?
(3) In both scenarios, if gross revenue is to be adjusted, which permanent establishment would include it in its gross revenue?
Position: (1) A transfer pricing adjustment relating to an expenditure is not included in gross revenue; (2) A transfer pricing adjustment relating to revenue transactions is included in gross revenue; (3) Such an adjustment would be attributable to the whichever permanent establishment was reasonably attributed the gross revenue from the transaction that was subject to the transfer pricing adjustment.
Reasons: (1) Since the adjustment changes the amount considered to be paid for an expenditure, there is no effect on gross revenue; (2) Adjustments relating to sales revenue are included as they represent an amount that would have otherwise been received, which is captured by the definition of gross revenue under subsection 248(1); (3) The adjusted amount should be attributed to the original permanent establishment that was attributed the gross revenue for that taxation year.