CRA asserts the ability to potentially bifurcate a cross-border management fee into deductible and non-deductible components

The 19 paragraphs in IC 87-2R on transfer pricing for intra-group services have been expanded into 78 paragraphs in TPM-15. Additional points include:

• It explicitly adopts the OECD Guidelines respecting the use of "indirect charges" (i.e., allocation of centralized service costs), so that this method is acceptable where third-party comparables are "occasional or marginal," the proportionate benefit to each affiliate cannot be "precisely quantified," and record-keeping is onerous.
• Although costs for the benefit of the non-resident parent should not be charged through to Canco, "Sarbanes-Oxley costs…should be reviewed and if the taxpayer can demonstrate that there is a benefit to the taxpayer associated with the charge/expense, it could be allowed as a deduction."
• Where a management fee charged to Canco is pursuant to a contract which "is not usually found in dealings between arm’s length parties, auditors may look through the management fee…[to] identify expenses that are not deductible under specific [ITA] sections…or to which Part XIII withholding tax applies."
• "Stand-by charges for service availability would not be expected in circumstances where…   there is little likelihood that the service will be needed."
• In the case of an affiliate performing agency services, such as centralized purchasing, "it will often make more sense to relate the compensation of the purchasing entity to its costs incurred as a facilitator or to the size of the discount it obtains rather than to the value of the goods purchased."

Neal Armstrong. Summary of TPM-15 "Intra-group services and section 247 of the Income Tax Act" under s. 247(2).