15 September 2020 IFA Roundtable Q. 5, 2020-0853401C6 - IFA 2020 Q5: TPM-17 and COVID-19 -- summary under Article 9

TPM-17 provides that the Canadian taxpayer’s cost base should not be reduced by government assistance unless there is reliable evidence that arm’s length parties would have done so. CRA confirmed that this position also applies to COVID assistance received by the Canadian taxpayer. Although the taxpayer can seek to demonstrate that there is marketplace evidence to the contrary (whatever on earth that might be), 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).