Where, as a result of an s. 247(2) transfer pricing adjustment respecting a transaction between Canco and CFA for the sale of goods or provision of services, an amount is included in computing Canco’s income, would s. 247(2) also apply to reduce the exempt surplus or foreign accrual property income (“FAPI”) of CFA in respect of Canco? In finding that s. 247(2) “cannot be applied independently to CFA to adjust CFA’s surplus or FAPI in respect of Canco,” CRA stated:
[T]o interpret subsection 247(2) as having such a two-sided effect could give inconsistent results as compared to where a foreign affiliate computes its surplus and FAPI in respect of a related Canadian corporation and not in respect of the taxpayer with whom the foreign affiliate is transacting. …[I]n order for subsection 247(2) to apply in the computation of a foreign affiliate’s surplus and FAPI, the foreign affiliate itself must be the taxpayer to which subsection 247(2) is applied.