It can be unclear whether CRA denial of a request for a s. 247(10) downward adjustment can be appealed to the Tax Court

Some senior CRA officials have the discretion under s. 247(10) to make downward transfer-pricing adjustments. CRA Appeals takes the position that the Appeals Branch has no authority to review a denied downward adjustment, and considers a notice of objection in which a denied downward adjustment is the only issue in dispute to be invalid.

Furthermore, given that IC 87-2R contemplates denial of a downward adjustment request where the taxpayer is able to obtain relief under the mutual agreement procedure of an applicable tax treaty:

The CRA has declined a request for a downward adjustment that was initiated by a Canadian taxpayer where the corollary adjustment requested by the taxpayer's US subsidiary led to the US subsidiary being reassessed first. The CRA denied the request on the basis that the adjustment request was the result of the actions of another tax authority.

Given the discretionary nature of s. 247(10), one might expect that the Federal Court was the appropriate forum for challenging the denial of a s. 247(10) downward adjustment. However, s. 247(11) incorporates the usual Part I objection provisions into the (Part XVI.1) transfer-pricing provisions "with such modifications as the circumstances require." Consequently, it is arguable that the Tax Court has jurisdiction to hear an appeal from a denied downward adjustment, since the denial is pursuant to a provision found in Part XVI.1.

Having regard inter alia to the Exchequer Court jurisprudence dealing with income computation provisions that were subject to Ministerial discretion, it is suggested that:

[I]n reviewing a denied downward adjustment request, the Tax Court could review the decision to ensure both that the amount of the downward adjustment request by the taxpayer is correct and that the minister has exercised his or her discretion appropriately (that is, the minister's decision-making process contains a rational justification that is transparent and intelligible, and the decision itself falls within a range of possible, acceptable outcomes that are defensible in respect of the facts and the law).


Where there is no assessment to which the taxpayer can object, it is questionable whether [the s. 247(11) "with such modifications as the circumstances require” language] permits the taxpayer to treat the letter denying the downward adjustment as tantamount to a notice of assessment to which the taxpayer can object or appeal.

Neal Armstrong. Summaries of Daniel Sandler and Lisa Watzinger, “Disputing Denied Downward Transfer-Pricing Adjustments,” Canadian Tax Journal, (2019) 67:2, 281-308 under s. 247(10) and s. 247(11).