Where a Canadian corporation (“Canco”) with an “elected functional currency” is subject to “transfer pricing income adjustments” respecting a “functional currency year” (as defined in ss. 261(1), 247(1) and 261(1), respectively),what relevant spot rate would be used to convert the C$5,000,000 threshold stated in s. 247(3)(b)(ii) into the elected functional currency, having regard to the statement in s. 261(5)(b) that, unless the context otherwise requires, each collar amount reference in the Act “other than in respect of a penalty or fine” is to be expressed in the taxpayer’s elected functional currency using the relevant spot rate for the first day of the particular taxation year in issue.
In finding that, in light of the quoted exclusion, the threshold amount was to be converted using the relevant spot rate for the first day of Canco’s particular taxation year in respect of which “transfer pricing income adjustments” are made, CRA stated:
The C$5,000,000 threshold amount in subparagraph 247(3)(b)(ii) is one of the two components that delineate the threshold above which a penalty might be assessed. It is only if the amount determined under paragraph 247(3)(a) exceeds the amount determined under paragraph 247(3)(b) that the taxpayer is subject to pay a penalty. The amount of the penalty itself is equal to 10% of the amount determined under paragraph 247(3)(a) and does not take into account paragraph 247(3)(b).
… [P]redictability should prevail in applying subsection 247(3), and the application of paragraph 261(5)(b) to identify the “relevant spot rate” as the relevant spot rate for the first day of the particular taxation year when converting the C$ 5,000,000 threshold under subparagraph 247(3)(b)(ii) is consistent with that goal.