Application of s. 247(2) to apply a mark-up to seconded employee services provided by Canco to a CFA can also result in FAPI

If Canco seconds employees to its non-resident subsidiary (FA) for use in FA’s services business with arm’s length customers there, CRA will not impute foreign accrual property income to Canco under s. 95(2)(b)(ii) if the employees are provided to FA at cost rather than a mark-up.  However, if CRA applies the transfer pricing rule (s. 247(2)) to impute a profit element to Canco on its secondment services, an applicable portion of the profits of FA will become FAPI to Canco.

Neal Armstrong.  Summary of 13 January 2014 Memo 2013-0474431E5 under s. 95(2)(b).