Income Tax Act — I-3.3 247
he quantum or nature of initial amounts or adjusted amounts, as the case may be. Transfer pricing adjustment — application (2) Subsection (2.02) applies to a taxpayer or a partnership in respect of a transaction or series of transactions if (a) the taxpayer or the partnership and a non-resident person with whom the taxpayer or the partnership, or a member of the partnership, does not deal at arm’s length (or a partnership of which the non-resident person is a member) are participants in the transaction or series; and (b) the transaction or series includes actual conditions different from arm’s length conditions. Transfer pricing adjustment — deeming rule (2.01) For the purposes of paragraph (2)(b), a transaction or series of transactions is deemed to include actual conditions different from arm’s length conditions if a condition does not exist in respect of the transaction or series, but would have existed had the participants in the transaction or series been dealing at arm’s length in comparable circumstances. Transfer pricing adjustment (2.02) If this subsection applies to a taxpayer or a partnership in respect of a transaction or series of transactions, any amounts (in this section referred to as the “initial amounts”) that would be determined for the purposes of applying the provisions of this Act (if this Act were read without reference to this section and section 245) in respect of the taxpayer or the partnership for a taxation year or fiscal period are to be adjusted (in this section referred to as an “adjustment”) to the quantum or nature of the amounts (in this section referred to as the “adjusted amounts”) that would have been determined if arm’s length conditions in respect of the transaction or series had applied. Transfer Pricing Guidelines (2.03) For the purposes of determining the effect of this Part in relation to a taxpayer or a partnership, each of the analysis and determination of a transaction or series of transactions under subsection (1.1), the identification of arm’s length conditions under paragraph (2)(b) and the determination of amounts under subsection (2.02) are to be made so as to best achieve consistency with the Transfer Pricing Guidelines. Most appropriate method (2.04) For the purposes of this Part, whether a transaction or series of transactions includes actual conditions that differ from arm’s length conditions is to be determined through an analysis where the most appropriate method is selected and applied in accordance with the Transfer Pricing Guidelines. Ordering (2.1) For the purpose of applying subsection (2.02) in the context of the other provisions of this Act, the following order is to be applied: (a) first determine each of the initial amounts; (b) then make the adjustments, if any, to each of the initial amounts; and (c) then apply each of the provisions of this Act (other than subsection (2.02) and, for greater certainty, including section 245) using the adjusted amounts. Penalty (3) A taxpayer (other than a taxpayer all of whose taxable income for the year is exempt from tax under Part I) is liable to a penalty for a taxation year equal to 10% of the amount determined under paragraph 247(3)(a) in respect of the taxpayer for the year, where (a) the amount, if any, by which (i) the total of (A) the taxpayer’s transfer pricing capital adjustment for the year, and (B) the taxpayer’s transfer pricing income adjustment for the year exceeds the total of (ii) the total of all amounts each of which is the portion of the taxpayer’s transfer pricing capital adjustment or transfer pricing income adjustment for the year that can reasonably be considered to relate to a particular transaction or series of transactions, where (A) the transaction or series is a qualifying cost contribution arrangement in which the taxpayer or a partnership of which the taxpayer is a member is a participant, or (B) in any other case, the taxpayer or a partnership of which the taxpayer is a member made reasonable