The Directorate considered that where there was a s. 247(2) transfer pricing adjustment to increase Canco’s income as a result of having undercharged for goods or services provided to a non-resident subsidiary (CFA), s. 247(2) could not also be applied to reduce the exempt surplus or foreign accrual property income of CFA in respect of Canco. The Directorate went on to state:
The surplus of CFA could conceivably be adjusted where CFA’s “earnings” are computed pursuant to subparagraph (a)(i) or (a)(ii) of the definition of “earnings” under [Reg.] 5907(1) … and the relevant foreign tax law makes its own transfer pricing adjustment, whether by way of a corresponding adjustment or otherwise. …[C]onsideration would have to be given to whether subsection 5907(2) … could reverse that foreign tax law adjustment ... .