Within a multinational group, cross-border transfer-pricing fees often include an inter-company charge in respect of share-compensation awards made to executives who provide services to a Canadian group company (Canco).  In the course of a Canada Revenue Agency (CRA) transfer-pricing audit, the CRA typically denies a deduction to Canco for this portion of the cross-border charge under s. 7(3)(b) of the Income Tax Act (Canada).  This provision is not part of Canada’s transfer-pricing regime.  Rather it is part of s. 7, which is a complete code for taxing employment benefits in Canada arising under certain stock-related agreements with employees: see Rogers Estate v The Queen, 2014 TCC 348, at paragraph 38.  In the context of a transfer-pricing audit (or otherwise), it is important to keep in mind potential arguments available to demonstrate the non-application of s. 7(3)(b).  For instance, in order for s. 7(3)(b) to be engaged, a corporation must have “agreed to sell or issue” its own securities (or securities of a non-arm’s length person).  This condition is generally not met where the share-compensation plan calls for the corporation’s shares to be purchased on the open market.  In 2005-0154911R3, the CRA ruled that such a plan would “not be subject to, or governed by, section 7” (see Ruling D).