CRA provides a more comprehensive description of its policies on secondary and repatriation adjustments

CRA has substantially expanded its Transfer Pricing Memorandum on secondary adjustments, and relief therefrom where there is an acceptable repatriation agreement. Where a Canadian taxpayer (including for these purposes, a partnership) is subject to a “primary adjustment” under s. 247(2) regarding its participation in a transaction or series with a non-arm’s length non-resident, (other than a CFA) a secondary adjustment (usually, a deemed dividend) is generally required to account for the benefit conferred on the non-arm’s length non-resident, namely, the excess amount paid to, or insufficient amount received from, such non-resident. However, if there is a repatriation agreement that is acceptable to CRA (that promptly refunds the benefit that otherwise gave rise to the secondary adjustment), CRA generally will not assess the deemed dividend.

Since the time of the original memorandum, ss. 212(12) and (13) were enacted to provide statutory authority for secondary adjustments and repatriation adjustments in the case of taxpayers who are resident corporations. However, this makes less of a difference than one might think. Where the taxpayer (e.g., a resident individual or trust) is not deemed to pay a dividend under s. 247(12), CRA will get to the same result by applying s. 15 (for a non-resident shareholder) or s. 56(2) (where the non-resident is not a shareholder) in order to impose withholding tax on the secondary adjustment under s. 214(3) – except that it may instead consider invoking s. 246(1)(b).

Similarly, although the potential relief for repatriation adjustments under s. 247(13) only applies to Canadian corporate taxpayers, CRA as an administrative matter applies the same policy to Canadian trusts and individuals.

However, CRA states that it will not provide relief from Part XIII tax on secondary adjustments, where there is repatriation, in the following cases:

• the Transfer Pricing Review Committee has approved the application of paragraphs 247(2)(b) and (d) of the ITA;
• the General Anti-Avoidance Rule Committee has approved the application of the general anti-avoidance rule under subsection 245(2) as an assessing position;
• other anti-avoidance provisions of the ITA are applicable to the transaction(s) or series of transactions (for example, subsections 17(2), 247(9), etc.);
• the taxpayer or a non-arm’s length non-resident has failed to honour a requirement or compliance order issued under the ITA relating to the transaction(s) or series of transactions; or
• any other circumstance in which the Minister does not concur with the repatriation.

These conditions for relief are expressed with greater rigidity than one would have expected for an appropriate exercise of Ministerial discretion.

Neal Armstrong. Summaries of TPM-02R Secondary Transfer Pricing Adjustments, Repatriation and Part XIII Tax Assessments 1 June 2021 under s. 247(12), s. 247(13) and s. 247(14).