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 there would be an increase in the adjusted cost base (“ACB”) of Canco’s shares of CFA under s. 53(1)(c)? CRA stated:
Where transfer prices differ from arm’s length terms, it can generally be considered that a benefit is conferred on the person overcharging or underpaying for goods or services. However, there is no general rule in the Act that deems such a conferral of benefit to be a contribution of capital. In this regard, it is notable that paragraph 212.3(10)(b) has specific language to achieve such a result, but that rule is only applicable in the foreign affiliate dumping context. On this basis, it is our view that the benefit conferred in the situation described cannot be considered a capital contribution by Canco to CFA for purposes of paragraph 53(1)(c).