CRA takes an expansive view of what constitutes “double non-taxation” in its revised TPM on s. 247(10)

CRA has replaced TPM-03 (regarding downward adjustments under s. 247(10)) by TPM-03R. It added the following statement of general principle, along with elaborations thereof:

Downward transfer pricing adjustments are not intended to serve as a vehicle for taxpayers to implement retroactive tax planning or base erosion and profit shifting strategies, nor are they intended to achieve double non-taxation.

It was inferable from the position taken by CRA in Dow Chemical that it considers there to be “double non-taxation” even if the downward adjustment requested of it corresponds to an income inclusion in the foreign jurisdiction which is now statute-barred. CRA provides a more elaborate example in TPM-03R indicating that it also considers there to be double non-taxation if the downward adjustment requested of it corresponds to an income inclusion in the foreign jurisdiction that is sheltered by a loss created through a corporate reorganization.

As compared to TPM-03, CRA has removed a number of examples regarding repatriations and secondary adjustments. This topic is now principally addressed in TPM-02R. CRA has also elaborated on who within CRA has the authority to decide on requested downward adjustments of various types.

Neal Armstrong. Summary of Memorandum TPM-03 "Downward Transfer Pricing Adjustments, 21 June 2022 under s. 247(10).