The Canadian taxpayer was in the business of printing custom electronic circuits. Pizzitelli J. found that the taxpayer was not dealing at arm's length with a Barbados corporation from which it received circuit printing set-up services, software, and web site design and maintenance.
Because the taxpayer was actually selling set-up services to third parties in Canada, and was in turn purchasing those services at the same price from the Barbados company, Pizzitelli J. found that the taxpayer had established comparable unrestrained prices between the taxpayer and one external party ("internal CUP") (paras. 185-86). The Minister's valuation method relied on the transactional net margin method ("TNMM"). Because internal CUP trumps TNMM on the hierarchy of pricing methods to be applied under s. 247(2), and the only higher method (external CUP) was not verifiable, the taxpayer's internal CUP comparable prevailed - it had therefore established arm's length prices on the set-up fees, and was entitled to deduct them in full.
The taxpayer's deductions of fees paid for software and web services were denied, as the taxpayer had not met the burden of proving that parties at arm's length would have dealt on those terms.