TPM-17 provides that the cost base should not be reduced by government assistance unless there is reliable evidence that arm’s length parties would have done so – so that it generally is presumed that the Canadian taxpayer will keep the assistance. How does this apply to COVID-related assistance?
CRA responded that the policy in TPM-17 applies, so that, if some marketplace evidence can be provided to show that such type of exceptional and temporary government assistance would be shared with arm’s length parties, then CRA is open to considering that. That said, CRA generally would expect, given the temporary and exceptional objectives of the COVID-related government assistance, that it should be kept by the Canadian recipient. Thus, in a cost-based transfer pricing methodology, the cost base should not be reduced by the amount of a wage subsidy that a Canadian company receives, and there would be no reduction in that company’s profit margin (with numerical examples provided).