The beneficiaries of CdnTrust, a trust resident in Canada that wholly-owns Canco, and of NRTrust, a factually non-resident trust that wholly-owns LLC1, are Canadian-resident and U.S.-resident members of the same family. Canco provided services for no consideration to LLC1.
In concluding that because NRTrust thereby will have a resident contributor (Canco), so that NRTrust will be resident under s. 94(3), the Directorate stated:
If Canco provided services to LLC1, other than exempt services defined in section 94(1), paragraph 94(2)(f) would apply to deem Canco to have transferred property to LLC1. Since Canco is deemed to have transferred property to LLC1, if this transfer would result in an increase in the fair market value of the shares of LLC1, paragraph 94(2)(a) would apply to deem Canco to have made a contribution to NRTrust.
It would seem reasonable to be of the view that services provided to LLC1 for no consideration would result in an increase in fair market value of the shares of LLC1. …[P]aragraph 94(2)(a) applies at the time the services are rendered for no consideration resulting in an increase in the fair market value of the shares of LLC1 at that time.
Respecting any application of the s. 247(2) transfer-pricing rules, the Directorate stated:
This test would continue to be met regardless of subsequent transactions or deemed income inclusions by virtue of subsection 247(2).