Subsection 247(2.1) establishes that transfer pricing rules take precedence over other tax provisions when determining transactions for Canadian corporations with related non-residents. This subsection outlines three ordering rules, introduced in Budget 2019 and legislated under Bill C-30 – these rules can be pertinent to Canadian technology firms participating in Scientific Research and Experimental Development (“SR&ED”) initiatives, particularly when a related non-resident company is involved. Specifically, if SR&ED tax credits are determined based on expenditures supplied by a related non-resident entity and subsequently adjusted through transfer pricing (“TP”) regulations, such revisions to eligible SR&ED expenses may impact the SR&ED investment tax credits (“ITC”) available to the taxpayer. This article addresses potential uncertainties associated with applying these ordering rules when calculating ITCs – and subsequent sale/disposition of a developed asset via SR&ED activities.
