Canada emergency wage subsidy: TPM-17 and transfer pricing considerations
TPM-17 outlines the CRA’s guidance on the treatment of government assistance and confirms the CRA’s policy: “When a cost-based transfer pricing methodology is used to determine the transfer price of goods, services, or intangibles sold by a Canadian taxpayer to a non-arm’s length non-resident person and the Canadian taxpayer receives government assistance, the cost base should not be reduced by the amount of the government assistance received, unless there is reliable evidence that arm’s length parties would have done so given the specific facts and circumstances.” As an economist working at the CRA’s Competent Authority Services Division when this policy was introduced, I saw first hand the arguments raised by taxpayers in their applications for Mutual Agreement Procedure or an Advance Pricing Arrangement in an attempt to support the “reliable evidence” exception. Now, in light of the pandemic and the government subsidies being given by the Canadian government, the policies in TPM-17 are a hot issue in the Canadian transfer pricing landscape, as taxpayers determine how to address the Canada Emergency Wage Subsidy for transfer pricing purposes.