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5907 (1) For the purposes of this Part,
- earnings
-
earnings of a foreign affiliate of a taxpayer resident in Canada for a taxation year of the affiliate from an active business means
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(a) in the case of an active business carried on by it in a country,
[...]
adjusted in each case in accordance with subsections (2), (2.1), (2.2) and (2.9) and, for the purpose of this Part, to the extent that the earnings of an affiliate from an active business carried on by it cannot be attributed to a permanent establishment in any particular country, they shall be attributed to the permanent establishment in the country in which the affiliate is resident and, if the affiliate is resident in more than one country, to the permanent establishment in the country that may reasonably be regarded as the affiliate’s principal place of residence, and
- exempt earnings
-
exempt earnings , of a particular foreign affiliate of a particular corporation for a taxation year of the particular affiliate, means, subject to subsection (2.02), the total of all amounts each of which is
-
(a) the amount by which the capital gains of the particular affiliate for the year (other than capital gains included in computing the amount, at any time in the year, of the particular affiliate’s hybrid surplus, or hybrid deficit, in respect of the particular corporation) exceed the total of
-
[...]
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(iii) the portion of any income or profits tax paid to the government of a country for the year by the particular affiliate that can reasonably be regarded as tax in respect of the amount by which the capital gains of the particular affiliate for the year exceed the total of the amounts referred to in subparagraphs (i) and (ii),
-
(a.1) the amount determined by the formula
A – B
where
- A
- is the total of all amounts each of which is a particular amount that would be included, in respect of a particular business of the particular affiliate, by paragraph (c), (c.1) or (c.2) of the definition capital dividend account in subsection 89(1) of the Act in determining the particular affiliate’s capital dividend account at the end of the year if
-
[...]
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(ii) the references in paragraphs (c.1) and (c.2) of that definition, and in paragraph (c) of that definition as that paragraph (c) read in its application to taxation years that ended before February 28, 2000, to “a business” were read as references to a business that
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(A) is not an active business (as defined in subsection 95(1) of the Act), or
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(B) is an active business (as defined in that subsection 95(1)) the particular affiliate’s earnings from which for the year are determined under subparagraph (a)(iii) of the definition earnings , and
-
[...]
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(c) where the year is the 1975 or any preceding taxation year of the particular affiliate, the earnings as determined in paragraph (b) of the definition earnings in this subsection to the extent that those earnings have not been included because of paragraph (b) or deducted in determining an amount included in subparagraph (b)(i) of the definition exempt loss in this subsection,
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(d) where the year is the 1976 or any subsequent taxation year of the particular affiliate and the particular affiliate is, throughout the year, resident in a designated treaty country,
minus the portion of any income or profits tax paid to the government of a country for the year by the particular affiliate that can reasonably be regarded as tax in respect of the earnings referred to in paragraph (c) or in subparagraph (d)(ii); (gains exonérés)
- exempt loss
-
exempt loss , of a foreign affiliate of a corporation for a taxation year of the affiliate, means, subject to subsection (2.02), the total of all amounts each of which is
-
(a) the amount by which the capital losses of the affiliate for the year (other than capital losses included in computing the amount, at any time in the year, of the particular affiliate’s hybrid surplus, or hybrid deficit, in respect of the particular corporation) exceed the total of
-
[...]
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(iii) the portion of any income or profits tax refunded by the government of a country for the year to the affiliate that can reasonably be regarded as tax refunded in respect of the amount by which the capital losses of the affiliate for the year exceed the total of the amounts referred to in subparagraphs (i) and (ii),
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(a.1) the total of all amounts each of which is the portion of an eligible capital expenditure of the affiliate, in respect of a business of the affiliate, that was not included at any time in the affiliate’s cumulative eligible capital in respect of the business, if
-
(i) the business
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(A) is not an active business (as defined in subsection 95(1) of the Act), or
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(B) is an active business (as defined in subsection 95(1) of the Act) the affiliate’s earnings from which for the year are determined under subparagraph (a)(iii) of the definition earnings , and
-
[...]
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(c) where the year is the 1976 or any subsequent taxation year of the affiliate and the affiliate is, throughout the year, resident in a designated treaty country,
-
[...]
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(ii) the amount by which
[...]
- exempt surplus
-
exempt surplus , of a foreign affiliate (in this definition referred to as the “subject affiliate”) of a corporation in respect of the corporation, at any particular time, means the amount determined by the following formula in respect of the period that begins with the latest of the following times and that ends with the particular time:
[...]
A – B
where
- A
- is the total of all amounts, in respect of the period, each of which is
-
(i) the opening exempt surplus, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (b),
-
[...]
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(iv) the portion of any income or profits tax refunded by or the amount of a tax credit paid by the government of a country to the subject affiliate that can reasonably be regarded as having been refunded or paid in respect of any amount referred to in subparagraph (iii) and that was not deducted in determining any amount referred to in subparagraph (iii) of the description of B,
-
[...]
-
(vii) an amount added, in the period and before the particular time, to the exempt surplus of the subject affiliate under paragraph (7.1)(d) (as that paragraph applied to dividends paid on or before August 19, 2011), and
- B
- is the total of those of the following amounts that apply in respect of the period:
-
(i) the opening exempt deficit, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (c),
-
[...]
-
(iii) the portion of any income or profits tax paid to the government of a country by the subject affiliate that can reasonably be regarded as having been paid in respect of any amount referred to in subparagraph (iii), (iv) or (v) of the description of A,
-
[...]
-
(v) each amount that is required under section 5902 or 5905 to be included under this subparagraph, or subparagraph (1)(d)(xii) as it applies to taxation years that end before February 22, 1994, in the period and before the particular time, or
- hybrid surplus
-
hybrid surplus , of a foreign affiliate (in this definition referred to as the “subject affiliate”) of a corporation in respect of the corporation, at any particular time, means the amount determined by the following formula in respect of the period that begins with the latest of the following times and that ends with the particular time:
[...]
A – B
where
- A
- is the total of all amounts, in respect of the period, each of which is
-
(i) the opening hybrid surplus, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (b),
-
(ii) the amount of a capital gain (except to the extent that the taxable portion of the capital gain is included under the description of B in the definition foreign accrual property income in subsection 95(1) of the Act in respect of the subject affiliate), for a taxation year, of the subject affiliate, or of a partnership of which the subject affiliate is a member (to the extent that the capital gain is reasonably attributable to the subject affiliate), in respect of a disposition, at any time in the period, of
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(iii) the portion of any income or profits tax refunded by the government of a country to the subject affiliate that can reasonably be regarded as having been refunded in respect of an amount referred to in subparagraph (ii) or (iii) of the description of B,
- B
- is the total of those of the following amounts that apply in respect of the period:
-
(i) the opening hybrid deficit, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (c),
-
(ii) the amount of a capital loss (except to the extent that the allowable portion of the capital loss is included under paragraph (a) of the description of E in the definition foreign accrual property income in subsection 95(1) of the Act in respect of the subject affiliate), for a taxation year, of the subject affiliate, or of a partnership of which the subject affiliate is a member (to the extent that the capital loss is reasonably attributable to the subject affiliate), in respect of a disposition, at any time in the period, of
-
[...]
-
(iv) the portion of any income or profits tax paid to the government of a country by the subject affiliate that can reasonably be regarded as having been paid in respect of an amount referred to in subparagraph (ii) or (iv) of the description of A,
- hybrid underlying tax
-
hybrid underlying tax , of a foreign affiliate (in this definition referred to as the “subject affiliate”) of a corporation in respect of the corporation, at any particular time, means the amount determined by the following formula in respect of the period that begins with the later of the following times and that ends with the particular time:
[...]
A – B
where
- A
- is the total of all amounts, in respect of the period, each of which is
-
(i) the opening hybrid underlying tax, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (b),
-
(ii) the portion of any income or profits tax paid to the government of a country by the subject affiliate that can reasonably be regarded as having been paid in respect of any amount referred to in subparagraph (ii) or (iv) of the description of A in the definition hybrid surplus ,
- B
- is the total of those of the following amounts that apply in respect of the period:
- net earnings
-
net earnings of a foreign affiliate of a corporation for a taxation year of the affiliate
-
(a) from an active business carried on by it in a country is the amount of its earnings for the year from that active business carried on in that country minus the portion of any income or profits tax paid to the government of a country for the year by the affiliate that can reasonably be regarded as tax in respect of those earnings,
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(b) in respect of foreign accrual property income is the amount that would be its foreign accrual property income for the year, if the formula in the definition foreign accrual property income in subsection 95(1) of the Act were read without reference to F and F.1 in that formula and the amount determined for E in that formula were the amount determined under paragraph (a) of the description of E in that formula and the Act were read without regard to its clause 95(2)(f.11)(ii)(D), minus the portion of any income or profits tax paid to the government of a country for the year by the affiliate that can reasonably be regarded as tax in respect of that income,
-
(c) from dispositions of property used or held by it principally for the purpose of gaining or producing income from an active business carried on by it in a country that is not a designated treaty country (other than Canada) is the amount, if any, by which
[...]
-
[...]
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(e) from the disposition of a property that is an excluded property of the affiliate that is described in paragraph (c) of the definition excluded property in subsection 95(1) of the Act but that would not be an excluded property of the affiliate if that paragraph were read in the manner described in sub-subclause (d)(ii)(E)(II)2 of the definition exempt earnings is the amount, if any, by which
[...]
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(f) from a particular disposition of a property, that is an excluded property of the affiliate because of paragraph (c.1) of the definition excluded property in subsection 95(1) of the Act, that related to
-
(i) an amount that was receivable under an agreement that relates to the sale of a particular property the taxable capital gain or allowable capital loss from the sale of which is included under any of paragraphs (c) to (e) of this definition or of the definition net loss , as the case may be,
-
[...]
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(iii) an amount payable, or an amount of indebtedness, described in clause (c.1)(ii)(B) of that definition excluded property arising in respect of the acquisition of an excluded property of the affiliate any taxable capital gain or allowable capital loss from the disposition of which would, if that excluded property were disposed of, be included under any of paragraphs (c) to (e) of this definition or of the definition net loss , as the case may be,
[...]
- net loss
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net loss of a foreign affiliate of a corporation for a taxation year of the affiliate
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(a) from an active business carried on by it in a country is the amount of its loss for the year from that active business carried on in that country minus the portion of any income or profits tax refunded by the government of a country for the year to the affiliate that can reasonably be regarded as tax refunded in respect of that loss,
-
(b) in respect of foreign accrual property income is the amount, if any, by which
[...]
-
(c) from dispositions of property used or held by it principally for the purpose of gaining or producing income from an active business carried on by it in a country that is not a designated treaty country (other than Canada) is the amount, if any, by which
[...]
-
[...]
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(e) from the disposition of a property, that is an excluded property of the affiliate that is described in paragraph (c) of the definition excluded property in subsection 95(1) of the Act but that would not be an excluded property of the affiliate if that paragraph were read in the manner described in sub-subclause (d)(ii)(E)(II)2 of the definition exempt earnings is the amount, if any, by which
[...]
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(f) from a particular disposition of a property, that is an excluded property of the affiliate because of paragraph (c.1) of the definition excluded property in subsection 95(1) of the Act, that related to
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(i) an amount that was receivable under an agreement that relates to the sale of a particular property the taxable capital gain or allowable capital loss from the sale of which is included under any of paragraphs (c) to (e) of this definition or of the definition net earnings , as the case may be,
-
[...]
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(iii) an amount payable, or an amount of indebtedness, described in clause (c.1)(ii)(B) of that definition excluded property arising in respect of the acquisition of an excluded property of the affiliate any taxable capital gain or allowable capital loss from the disposition of which would, if that excluded property were disposed of, be included under any of paragraphs (c) to (e) of this definition or of the definition net earnings , as the case may be,
[...]
- net surplus
-
net surplus of a foreign affiliate of a corporation resident in Canada in respect of the corporation is, at any particular time,
[...]
as the case may be, at that time; (surplus net)
- taxable earnings
-
taxable earnings of a foreign affiliate of a corporation for a taxation year of the affiliate is
[...]
- taxable loss
-
taxable loss of a foreign affiliate of a corporation for a taxation year of the affiliate is
[...]
- taxable surplus
-
taxable surplus , of a foreign affiliate (in this definition referred to as the “subject affiliate”) of a corporation in respect of the corporation, at any particular time, means the amount determined by the following formula in respect of the period that begins with the latest of the following times and that ends with the particular time:
[...]
A – B
where
- A
- is the total of all amounts, in respect of the period, each of which is
-
(i) the opening taxable surplus, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (b),
-
[...]
-
(v) an amount added, in the period and before the particular time, to the subject affiliate’s taxable surplus under paragraph (7.1)(e) (as that paragraph applied to dividends paid on or before August 19, 2011), and
- B
- is the total of those of the following amounts that apply in respect of the period:
-
(i) the opening taxable deficit, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (c),
-
[...]
-
(iii) the portion of any income or profits tax paid to the government of a country by the subject affiliate that can reasonably be regarded as having been paid in respect of that portion of a dividend referred to in subparagraph (iii) of the description of A,
-
[...]
-
(v) each amount that is required under section 5902 or 5905 to be included under this subparagraph, or subparagraph (1)(k)(xi) as it applies to taxation years that end before February 22, 1994, in the period and before the particular time, or
- underlying foreign tax
-
underlying foreign tax , of a foreign affiliate (in this definition referred to as the “subject affiliate”) of a corporation in respect of the corporation, at any particular time, means the amount determined by the following formula in respect of the period that begins with the later of the following times and that ends with the particular time:
[...]
A – B
where
- A
- is, subject to subsection (1.03), the total of all amounts, in respect of the period, each of which is
-
(i) the opening underlying foreign tax, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (b),
-
(ii) the portion of any income or profits tax paid to the government of a country by the subject affiliate that can reasonably be regarded as having been paid in respect of the taxable earnings, including for greater certainty any amounts included because of paragraph (2.02)(a) in computing the taxable earnings, of the affiliate for a taxation year ending in the period,
- B
- is the total of those of the following amounts that apply in respect of the period:
-
(i) the portion of any income or profits tax refunded by the government of a country to the subject affiliate that can reasonably be regarded as having been refunded in respect of the taxable loss of the subject affiliate for a taxation year ending in the period,
-
[...]
-
(iii) each amount that is required under section 5902 or 5905 to be included under this subparagraph, or subparagraph (1)(l)(x) as it applies to taxation years that end before February 22, 1994, in the period and before the particular time, or
-
[...]
-
(1.02) For the purposes of paragraph (d) of the definition exempt earnings and paragraph (c) of the definition exempt loss in subsection (1), if a foreign affiliate of a corporation becomes a foreign affiliate of the corporation in a taxation year of the affiliate, otherwise than as a result of a transaction between persons that do not deal with each other at arm’s length, and the affiliate is resident in a designated treaty country at the end of the year, the affiliate is deemed to be so resident throughout the year.
-
(1.03) For the purposes of the description of A in the definition underlying foreign tax in subsection (1), income or profits tax paid in respect of the taxable earnings of a particular foreign affiliate of a particular corporation or in respect of a dividend received by the particular affiliate from another foreign affiliate of the particular corporation, and amounts by which the underlying foreign tax of the particular affiliate or any other foreign affiliate of the particular corporation is required under any of subsections (1.092), (1.1) and (1.2) to be increased, is not to include any income or profits tax paid, or amounts by which the underlying foreign tax would otherwise be so required to be increased, as the case may be, in respect of the foreign accrual property income of the particular affiliate for a taxation year of the particular affiliate if, at any time in the year, a specified owner in respect of the particular corporation is considered,
-
(a) under the income tax laws (referred to in subsection (1.07) as the “relevant foreign tax law”) of any country other than Canada under the laws of which any income of another corporation — that is, at any time in the year, a pertinent person or partnership in respect of the particular affiliate — is subject to income taxation, to own less than all of the shares of the capital stock of the other corporation that are considered to be owned by the specified owner for the purposes of the Act; or
-
(b) under the income tax laws (referred to in subsection (1.08) as the “relevant foreign tax law”) of any country other than Canada under the laws of which any income of a particular partnership — that is, at any time in the year, a pertinent person or partnership in respect of the particular affiliate — is subject to income taxation, to have a lesser direct or indirect share of the income of the particular partnership than the specified owner is considered to have for the purposes of the Act.
-
[...]
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(1.06) For the purposes of subsections (1.04) and (1.05), if, as part of a series of transactions or events that includes the earning of the foreign accrual property income referred to in subsection (1.03), a foreign affiliate (referred to in this subsection as the “funding affiliate”) of the corporation or of a person (referred to in this subsection as the “related person”) resident in Canada that is related to the corporation, or a partnership (referred to in this subsection as the “funding partnership”) of which such an affiliate is a member, directly or indirectly provided funding to the particular affiliate, or a partnership of which the particular affiliate is a member, otherwise than by way of loans or other indebtedness that are subject to terms or conditions made or imposed, in respect of the loans or other indebtedness, that do not differ from those that would be made or imposed between persons dealing at arm’s length or by way of an acquisition of shares of the capital stock of any corporation, then
[...]
-
(1.07) For the purposes of paragraph (1.03)(a), a specified owner in respect of the particular corporation is not to be considered, under the relevant foreign tax law, to own less than all of the shares of the capital stock of another corporation that are considered to be owned for the purposes of the Act solely because the specified owner or the other corporation is not treated as a corporation under the relevant foreign tax law.
-
(1.08) For the purposes of paragraph (1.03)(b), a member of a partnership is not to be considered to have a lesser direct or indirect share of the income of the partnership under the relevant foreign tax law than for the purposes of the Act solely because of one or more of the following:
-
(1.09) For the purposes of subsection (1.03), if a specified owner owns, for the purposes of the Act, shares of the capital stock of a corporation and the dividends, or similar amounts, in respect of those shares are treated under the income tax laws of any country other than Canada under the laws of which any income of the corporation is subject to income taxation as interest or another form of deductible payment, the specified owner is deemed to be considered, under those tax laws, to own less than all of the shares of the capital stock of the corporation that are considered to be owned by the specified owner for the purposes of the Act.
-
(1.091) Subsection (1.092) applies in respect of income or profits tax paid by, or refunded to, a foreign affiliate (in this subsection and subsection (1.092) referred to as the “shareholder affiliate”) of a taxpayer for a taxation year of the shareholder affiliate in respect of its income or profits, or loss, as the case may be, and the income or profits, or loss, as the case may be, of another foreign affiliate (in this subsection and subsection (1.092) referred to as the “transparent affiliate”) of the taxpayer if
[...]
-
(1.092) If this subsection applies in respect of income or profits tax paid by, or refunded to, a shareholder affiliate for a taxation year
-
(a) in respect of the shareholder affiliate,
-
[...]
-
(iii) to the extent that
-
(A) any such income or profits tax that would otherwise have been payable by the shareholder affiliate for the year on behalf of the shareholder affiliate and the transparent affiliate is reduced because of any loss of the shareholder affiliate for the year or any previous taxation year, the amount of such reduction is deemed to have been received by the shareholder affiliate as a refund for the year of the loss of income or profits tax in respect of the loss, and
-
(B) the shareholder affiliate receives, in respect of a loss of the shareholder affiliate for the year or a subsequent taxation year, a refund of income or profits tax otherwise payable for the year by the shareholder affiliate on behalf of the shareholder affiliate and the transparent affiliate, the amount of such refund is deemed to have been received by the shareholder affiliate as a refund for the year of the loss of income or profits tax in respect of the loss,
-
(iv) any such income or profits tax that would have been payable by the transparent affiliate for the year if the transparent affiliate had no other taxation year, had no income or profits other than those that are included in computing the income or profits of the shareholder affiliate under the income tax laws referred to in paragraph (1.091)(c) and had been liable, and no other person had been liable, for income or profits tax in respect of income or profits of the transparent affiliate is, at the end of the year,
-
(A) to the extent that such income or profits tax would otherwise have reduced the net earnings included in the exempt earnings of the transparent affiliate, to be deducted from the exempt surplus or added to the exempt deficit, as the case may be, of the shareholder affiliate,
-
(B) to the extent that such income or profits tax would otherwise have reduced the hybrid surplus or increased the hybrid deficit of the transparent affiliate,
-
(I) to be deducted from the hybrid surplus or added to the hybrid deficit, as the case may be, of the shareholder affiliate, and
-
(C) to the extent that such income or profits tax would otherwise have reduced the net earnings included in the taxable earnings of the transparent affiliate,
-
(I) to be deducted from the taxable surplus or added to the taxable deficit, as the case may be, of the shareholder affiliate, and
-
(v) to the extent that the income or profits tax that would otherwise have been payable by the shareholder affiliate for the year on behalf of the shareholder affiliate and the transparent affiliate is reduced because of a loss of the transparent affiliate for the year or a previous taxation year, or to the extent that the shareholder affiliate receives, in respect of a loss of the transparent affiliate for the year or a subsequent taxation year, a refund of income or profits tax otherwise payable for the year by the shareholder affiliate on behalf of the shareholder affiliate and the transparent affiliate, the amount of such reduction or refund, as the case may be, is, at the end of the year of the loss,
-
(A) to the extent that such loss reduces the exempt surplus or increases the exempt deficit of the transparent affiliate, to be added to the exempt surplus or deducted from the exempt deficit, as the case may be, of the shareholder affiliate,
-
(B) to the extent that such loss reduces the hybrid surplus or increases the hybrid deficit of the transparent affiliate,
-
(I) to be added to the hybrid surplus or deducted from the hybrid deficit, as the case may be, of the shareholder affiliate, and
-
(C) to the extent that such loss reduces the taxable surplus or increases the taxable deficit of the transparent affiliate,
-
(I) to be added to the taxable surplus or deducted from the taxable deficit, as the case may be, of the shareholder affiliate, and
-
(b) where, because of the shareholder affiliate being responsible for paying, or claiming a refund of, income or profits tax for the year on behalf of the shareholder affiliate and the transparent affiliate,
-
(i) an amount is paid to the shareholder affiliate by the transparent affiliate in respect of the income or profits tax that would have been payable by the transparent affiliate for the year had it been liable, and no other person had been liable, for income or profits tax in respect of income or profits of the transparent affiliate,
-
(ii) an amount is paid by the shareholder affiliate to the transparent affiliate in respect of a reduction or refund, because of a loss or a tax credit of the transparent affiliate for a taxation year, of the income or profits tax that would otherwise have been payable by the shareholder affiliate for the year on behalf of the shareholder affiliate and the transparent affiliate,
-
(1.1) For the purposes of this Part, if, under, the income tax laws of a country other than Canada, a group (in this subsection referred to as the “consolidated group”) of two or more foreign affiliates of a corporation resident in Canada determine their liabilities for income or profits tax payable to the government of that country for a taxation year on a consolidated or combined basis and one of the affiliates (in this subsection referred to as the “primary affiliate”) is responsible for paying, or claiming a refund of, such tax on behalf of itself and the other affiliates (in this subsection referred to as the “secondary affiliates”) that are members of the consolidated group, the following rules apply:
-
(a) in respect of the primary affiliate,
-
[...]
-
(iii) to the extent that
[...]
the amount of such reduction or refund, as the case may be, shall be deemed to have been received by the primary affiliate as a refund for the year of the loss of income or profits tax in respect of the loss,
-
(iv) any such income or profits tax that would have been payable by a secondary affiliate for the year if the secondary affiliate had no other taxation year and had not been a member of the consolidated group shall at the end of the year,
-
(A) to the extent that such income or profits tax would otherwise have reduced the net earnings included in the exempt earnings of the secondary affiliate, be deducted from the exempt surplus or added to the exempt deficit, as the case may be, of the primary affiliate,
-
(A.1) to the extent that such income or profits tax would otherwise have reduced the hybrid surplus or increased the hybrid deficit of the secondary affiliate,
-
(I) be deducted from the hybrid surplus or added to the hybrid deficit, as the case may be, of the primary affiliate, and
-
(B) to the extent that such income or profits tax would otherwise have reduced the net earnings included in the taxable earnings of the secondary affiliate,
-
(I) be deducted from the taxable surplus or added to the taxable deficit, as the case may be, of the primary affiliate, and
-
(v) to the extent that
[...]
the amount of such reduction or refund, as the case may be, shall at the end of the year of the loss,
-
(C) where such loss reduces the exempt surplus or increases the exempt deficit, as the case may be, of the secondary affiliate, be added to the exempt surplus or deducted from the exempt deficit, as the case may be, of the primary affiliate,
-
(C.1) where such loss reduces the hybrid surplus or increases the hybrid deficit, as the case may be, of the secondary affiliate,
-
(I) be added to the hybrid surplus or deducted from the hybrid deficit, as the case may be, of the primary affiliate, and
-
(D) where such loss reduces the taxable surplus or increases the taxable deficit, as the case may be, of the secondary affiliate,
-
(I) be added to the taxable surplus or deducted from the taxable deficit, as the case may be, of the primary affiliate, and
-
(b) where by virtue of the primary affiliate being responsible for paying, or claiming a refund of, income or profits tax for the year on behalf of the consolidated group,
-
(i) an amount is paid to the primary affiliate by a secondary affiliate in respect of the income or profits tax that would have been payable by the secondary affiliate for the year had it not been a member of the group,
-
(ii) an amount is paid by the primary affiliate to a secondary affiliate in respect of a reduction or refund, because of a loss or a tax credit of the secondary affiliate for a taxation year, of the income or profits tax that would otherwise have been payable by the primary affiliate for the year on behalf of the consolidated group
[...]
-
[...]
-
(1.12) Subsection (1.13) applies in respect of a particular foreign affiliate of a corporation resident in Canada that is a secondary affiliate (within the meaning assigned by subsection (1.1)) and in respect of a foreign affiliate of the corporation that is the primary affiliate (within the meaning assigned by subsection (1.1)) in respect of the particular affiliate if
-
(a) the particular affiliate has an equity percentage in another foreign affiliate (in this subsection and subsection (1.13) referred to as the “transparent affiliate”);
-
(b) under the income tax laws of the country referred to in subsection (1.1), if the particular affiliate were not a member of a consolidated group, the particular affiliate, and not the transparent affiliate, would be liable for any tax payable to, or entitled to any refund from, a government of that country for that year in respect of the income or profits, or loss, as the case may be, for the year of the transparent affiliate; and
-
(c) the primary affiliate pays income or profits tax, or receives a refund, in respect of the income or profits, or loss, as the case may be, for the year of the transparent affiliate.
-
(1.13) If this subsection applies, then in respect of the particular foreign affiliate and the primary affiliate referred to in subsection (1.12)
-
(a) for the purposes of applying subparagraphs (1.1)(a)(iv) and (1.1)(b)(i), where any income or profits tax that would otherwise be payable by the particular affiliate for the year, if the particular affiliate had no other taxation year and were not a member of the consolidated group referred to in subsection (1.1), is increased because of income or profits of the transparent affiliate referred to in paragraph (1.12)(a),
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(i) to the extent that the income or profits increases the net earnings included in the exempt earnings of the transparent affiliate,
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(A) the amount of any such increase is deemed to have been included in the exempt surplus, or deducted from the exempt deficit, as the case may be, of the particular affiliate, and
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(ii) to the extent that the income or profits increases the hybrid surplus or reduces the hybrid deficit of the transparent affiliate,
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(A) the amount of the increase or reduction is deemed to have been included in the hybrid surplus, or deducted from the hybrid deficit, as the case may be, of the particular affiliate, and
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(B) any such income or profits tax that would have been payable by the particular affiliate in respect of the income or profits is deemed to be income or profits tax that would otherwise have reduced the hybrid surplus or increased the hybrid deficit, as the case may be, of the particular affiliate, and
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(iii) to the extent that the income or profits increases the net earnings included in the taxable earnings of the transparent affiliate,
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(A) the amount of any such increase is deemed to have been included in the taxable surplus, or deducted from the taxable deficit, as the case may be, of the particular affiliate, and
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(b) for the purpose of applying subparagraphs (1.1)(a)(v) and (1.1)(b)(ii), to the extent that the income or profits tax that would otherwise have been payable by the primary affiliate for the year on behalf of the consolidated group is reduced because of a loss, for the year or a previous taxation year, of the transparent affiliate referred to in paragraph (1.12)(a), or to the extent that the primary affiliate receives, in respect of a loss of the transparent affiliate for the year or a subsequent taxation year, a refund of income or profits tax otherwise payable for the year by the primary affiliate on behalf of the consolidated group,
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[...]
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(ii) to the extent that such loss reduces the exempt surplus or increases the exempt deficit of the transparent affiliate, such loss is deemed to reduce the exempt surplus or increase the exempt deficit, as the case may be, of the particular affiliate,
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(iii) to the extent that such loss reduces the hybrid surplus or increases the hybrid deficit of the transparent affiliate, such loss is deemed to reduce the hybrid surplus or increase the hybrid deficit, as the case may be, of the particular affiliate, and
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(iv) to the extent that such loss reduces the taxable surplus or increases the taxable deficit of the transparent affiliate, such loss is deemed to reduce the taxable surplus or increase the taxable deficit, as the case may be, of the particular affiliate.
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(1.2) For the purposes of this Part, where, pursuant to the income tax law of a country other than Canada, a corporation resident in that country that is a foreign affiliate of a corporation resident in Canada (in this subsection referred to as the “taxpaying affiliate”) deducts, in computing its income or profits tax payable for a taxation year to a government of that country, a loss of another corporation resident in that country that is a foreign affiliate of the corporation resident in Canada (in this subsection referred to as the “loss affiliate”), the following rules apply:
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[...]
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(c) to the extent that the income or profits tax that would otherwise have been payable by the taxpaying affiliate for the year is reduced by virtue of such loss, the amount of such reduction shall at the end of the year,
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(i) where such loss reduces the exempt surplus or increases the exempt deficit, as the case may be, of the loss affiliate, be added to the exempt surplus or deducted from the exempt deficit, as the case may be, of the taxpaying affiliate,
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(i.1) where such loss reduces the hybrid surplus or increases the hybrid deficit, as the case may be, of the loss affiliate,
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(A) be added to the hybrid surplus or deducted from the hybrid deficit, as the case may be, of the taxpaying affiliate, and
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(ii) where such loss reduces the taxable surplus or increases the taxable deficit, as the case may be, of the loss affiliate,
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(A) be added to the taxable surplus or deducted from the taxable deficit, as the case may be, of the taxpaying affiliate, and
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(d) where an amount is paid by the taxpaying affiliate to the loss affiliate in respect of the reduction, by virtue of such loss, of the income or profits tax that would otherwise have been payable by the taxpaying affiliate for the year,
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(1.21) Subsection (1.22) applies if
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(a) a foreign affiliate of the taxpayer (in this subsection and subsection (1.22) referred to as the “shareholder affiliate”) has an equity percentage in another foreign affiliate (in this subsection and subsection (1.22) referred to as the “transparent affiliate”); and
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(b) under the income tax laws of the country in which the shareholder affiliate is resident, the shareholder affiliate, and not the transparent affiliate, is liable for any tax payable to, or entitled to any refund from, a government of that country for that year in respect of the income or profits, or loss, as the case may be, for the year of the transparent affiliate.
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(1.22) If this subsection applies, for the purpose of applying subsection (1.2), any loss of the transparent affiliate, to the extent that the loss is deducted in computing the income, profits or loss of the shareholder affiliate under an income tax law referred to in paragraph (1.21)(b),
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[...]
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(b) is deemed to
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(i) reduce the exempt surplus, or increase the exempt deficit, as the case may be, of the shareholder affiliate to the extent that it reduces the exempt surplus or increases the exempt deficit of the transparent affiliate,
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(ii) reduce the hybrid surplus or increase the hybrid deficit, as the case may be, of the shareholder affiliate to the extent that it reduces the hybrid surplus or increases the hybrid deficit of the transparent affiliate, and
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(iii) reduce the taxable surplus or increase the taxable deficit, as the case may be, of the shareholder affiliate to the extent that it reduces the taxable surplus or increases the taxable deficit of the transparent affiliate.
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(1.3) For the purpose of paragraph (b) of the definition foreign accrual tax in subsection 95(1) of the Act and subject to subsection (1.4),
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(a) if under the income tax laws of the country in which the particular affiliate or a shareholder affiliate of the particular affiliate, as the case may be, referred to in that paragraph is resident, the particular affiliate, or shareholder affiliate, and one or more other corporations, each of which is resident in that country, determine their liabilities for income or profits tax payable to the government of that country for a taxation year on a consolidated or combined basis, then any amount paid by the particular affiliate, or shareholder affiliate, to any of those other corporations to the extent that the amount paid may reasonably be regarded as being in respect of income or profits tax that would otherwise have been payable by the particular affiliate, or shareholder affiliate, in respect of a particular amount that is included under subsection 91(1) of the Act in computing the taxpayer’s income for a taxation year of the taxpayer in respect of the particular affiliate, if the tax liability of the particular affiliate, or shareholder affiliate, and those other corporations had not been determined on a consolidated or combined basis, is prescribed to be foreign accrual tax applicable to the particular amount; and
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(b) if, under the income tax laws of the country in which the particular affiliate or a shareholder affiliate of the particular affiliate, as the case may be, referred to in that paragraph is resident, the particular affiliate, or shareholder affiliate, deducts, in computing its income or profits subject to tax in that country for a taxation year, an amount in respect of a loss of another corporation (referred to in this paragraph and paragraph (1.6)(a) as the “loss transferor”) resident in that country (referred to in this paragraph and paragraph (1.6)(a) as the “transferred loss”), then any amount paid by the particular affiliate, or shareholder affiliate, to the loss transferor to the extent that the amount paid may reasonably be regarded as being in respect of income or profits tax that would otherwise have been payable by the particular affiliate, or shareholder affiliate, in respect of a particular amount that is included under subsection 91(1) of the Act in computing the taxpayer’s income for a taxation year of the taxpayer in respect of the particular affiliate, if the tax liability of the particular affiliate, or shareholder affiliate, had been determined without deducting the transferred loss, is prescribed to be foreign accrual tax applicable to the particular amount.
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(1.4) If the amount prescribed under paragraph (1.3)(a) or (b), or any portion of the amount, can reasonably be considered to be in respect of a particular loss (other than a capital loss) or a capital loss of another corporation for a taxation year of the other corporation, then the amount so prescribed is to be reduced to the extent that it can reasonably be considered to be in respect of the portion of the particular loss or capital loss, as the case may be, that would, if sections 5903 and 5903.1 were read without reference to their subsection (4), not be a foreign accrual property loss (within the meaning assigned by subsection 5903(3)), or a foreign accrual capital loss (within the meaning assigned by subsection 5903.1(3)), as the case may be, of a controlled foreign affiliate of a person or partnership that is, at the end of that taxation year, a relevant person or partnership (within the meaning assigned by subsection 5903(6)) in respect of the taxpayer.
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(1.5) If subsection (1.4) applied to reduce an amount that would, in the absence of subsection (1.4), be prescribed by subsection (1.3) to be foreign accrual tax applicable to an amount (referred to in this subsection as the “FAPI amount”) included under subsection 91(1) of the Act in computing the taxpayer’s income for a taxation year (referred to in subsection (1.6) as the “FAPI year”) of the taxpayer in respect of the particular affiliate referred to in paragraph (1.3)(a) or (b), then an amount equal to that reduction is, for the purposes of paragraph (b) of the definition foreign accrual tax in subsection 95(1) of the Act, prescribed to be foreign accrual tax applicable to the FAPI amount in the taxpayer’s taxation year that includes the last day of the designated taxation year, if any, of the particular affiliate or the shareholder affiliate referred to in paragraph (1.3)(a) or (b), as the case may be.
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(1.6) For the purposes of subsection (1.5), the designated taxation year of the particular affiliate or the shareholder affiliate, as the case may be, is a particular taxation year of the particular affiliate, or the shareholder affiliate, if
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(a) in the particular year, or in the taxation year of the particular affiliate or shareholder affiliate (referred to in this paragraph as the “PATY”) ending in the FAPI year and one or more taxation years of the particular affiliate (or shareholder affiliate) each of which follows the PATY and the latest of which is the particular year, all losses of the particular affiliate (or shareholder affiliate) and the other corporations referred to in paragraph (1.3)(a) — or of the particular affiliate, the loss transferor and each corporation that would have been permitted to deduct the transferred loss against its income under the income tax laws referred to in paragraph (1.3)(b) if the transferred loss had not been deducted by the particular affiliate and if the corporation had taxable income for its taxation years ending in the FAPI year in excess of the transferred loss — for their taxation years ending in the FAPI year would, on the assumption that the particular affiliate (or shareholder affiliate) and each of those other corporations had no foreign accrual property income for any taxation year, reasonably be considered to have been fully deducted (under the tax laws referred to in paragraph (1.3)(a) or (b)) against income (as determined under those tax laws) of the particular affiliate (or shareholder affiliate) or those other corporations;
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(1.7) If the amount prescribed under paragraph (1.3)(a) or (b), or any portion of the amount, can reasonably be considered to be in respect of a capital loss of another corporation for a taxation year of the other corporation, then the amount so prescribed, as reduced by subsection (1.4), if applicable, shall be reduced to the extent that it can reasonably be considered to be in respect of the portion of that capital loss that would not be deductible by the particular affiliate in computing its foreign accrual property income for the year if the capital loss had been incurred by the particular affiliate.
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(2) In computing the earnings of a foreign affiliate of a taxpayer resident in Canada for a taxation year of the affiliate from an active business carried on by it in a country, there shall be added to the amount thereof determined under subparagraph (a)(i) or (ii) of the definition earnings in subsection (1) (in this subsection referred to as the “earnings amount”) such portion of the following amounts as was deducted or was not included, as the case may be, in computing the earnings amount,
[...]
and there shall be deducted such portion of the following amounts as were included or were not deducted, as the case may be, in computing the earnings amount,
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[...]
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(j) any loss, outlay or expense made or incurred in the year by the affiliate for the purpose of gaining or producing such earnings amount to the extent that
[...]
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[...]
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(l) if any property of the affiliate that was acquired from a person or partnership that was, at the time of the acquisition, a designated person or partnership in respect of the taxpayer has been disposed of, the amount in respect of that property that may reasonably be considered as having been included under paragraph (f) in computing the earnings amount of any foreign affiliate of the taxpayer or of a person or partnership that was, at the time of the disposition, a designated person or partnership in respect of the taxpayer.
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(2.01) Subparagraphs (2)(f)(ii) and (j)(iii) and subsection (5.1) do not apply to a particular disposition of property (referred to in this subsection as the “affiliate property”) by a particular foreign affiliate of a taxpayer if
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(2.011) Subparagraphs (2)(f)(ii) and (j)(iii) and subsection (5.1) do not apply to a particular disposition of property (referred to in this subsection as the “affiliate property”) by a particular foreign affiliate of a taxpayer to another foreign affiliate of the taxpayer if
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[...]
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(2.03) The determination — under subparagraph (a)(iii) and paragraph (b) of the definition earnings , and paragraph (b) of the definition loss , in subsection (1) — of the earnings or loss of a foreign affiliate of a taxpayer resident in Canada for a particular taxation year from an active business is to be made as if the affiliate
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(a) had, in computing its income or loss from the business for each taxation year (referred to in this paragraph as an “earnings or loss year”) that is the particular year or is any preceding taxation year that ends after August 19, 2011,
[...]
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(2.1) In computing the earnings of a foreign affiliate of a corporation resident in Canada for a taxation year of the affiliate from an active business carried on by it in Canada or in a designated treaty country, where the affiliate is resident in a designated treaty country and the corporation, together with all other corporations resident in Canada with which the corporation does not deal at arm’s length and in respect of which the affiliate is a foreign affiliate, have so elected in respect of the business for the taxation year or any preceding taxation year of the affiliate, the following rules apply:
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(a) there shall be added to the amount determined under subparagraph (a)(i) of the definition earnings in subsection (1) after adjustment in accordance with the provisions of subsection (2) (in this subsection and in subsection (2.2) referred to as the “adjusted earnings amount”) the total of all amounts each of which is the amount, if any, by which
[...]
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(2.2) Where the taxation year of a foreign affiliate of a particular corporation resident in Canada for which the particular corporation has made an election under subsection (2.1) in respect of an active business carried on by the affiliate is not the first taxation year of the affiliate in which it carried on the business and in which it was a foreign affiliate of the particular corporation or of another corporation resident in Canada with which the particular corporation was not dealing at arm’s length at any time (hereinafter referred to as the “non-arm’s length corporation”), in computing the earnings of the affiliate from the business for the taxation year for which the election is made, the following rules, in addition to those set out in subsection (2.1), apply:
[...]
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(2.3) For the purposes of this subsection and subsections (2.1) and (2.2), where an election under subsection (2.1) has been made by a corporation resident in Canada (in this subsection and in subsection (2.4) referred to as the “electing corporation”) in respect of an active business of a foreign affiliate of the electing corporation and the affiliate subsequently becomes a foreign affiliate of another corporation resident in Canada (in this subsection and in subsection (2.4) referred to as the “subsequent corporation”) that does not deal at arm’s length with the electing corporation, in computing the earnings of the affiliate from such business in respect of the subsequent corporation for any taxation year of the affiliate ending after the affiliate so became a foreign affiliate of the subsequent corporation, the subsequent corporation shall be deemed to have made an election under subsection (2.1) in respect of the business of the affiliate for the first such taxation year and for the purposes of paragraph (2.1)(d), the earnings of the affiliate for all of the preceding taxation years shall be deemed to have been adjusted in accordance with subsections (2.1) and (2.2) in the same manner as if the subsequent corporation had been the electing corporation.
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(2.4) For the purposes of subsection (2.3)
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(a) a corporation formed as a result of a merger, to which section 87 of the Act applies, of the electing corporation and one or more other corporations, or
[...]
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[...]
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(2.7) Notwithstanding any other provision of this Part, if an amount (referred to in this subsection as the “inclusion amount”) is included in computing the income or loss from an active business of a foreign affiliate of a taxpayer for a taxation year under subparagraph 95(2)(a)(i) or (ii) of the Act and the inclusion amount is in respect of a particular amount paid or payable,
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(a) if clause 95(2)(a)(ii)(D) of the Act is applicable, by the second affiliate referred to in that clause,
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(b) in any other case, by the other foreign affiliate referred to in subparagraph 95(2)(a)(i) or (ii) of the Act, as the case may be, or by a partnership of which the other foreign affiliate is a member, the particular amount is, except where it has been deducted under paragraph (2)(j) in computing the other foreign affiliate’s earnings or loss from an active business,
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(i) to be deducted in computing the earnings or loss of the other foreign affiliate or the partnership, as the case may be, from the active business for its earliest taxation year in which the particular amount was paid or payable, and
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[...]
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(2.9) If paragraph 95(2)(k.1) of the Act applies in respect of a particular taxation year of a foreign affiliate of a taxpayer or in respect of a particular fiscal period of a partnership (which foreign affiliate or partnership is referred to in this subsection as the “operator” and which particular taxation year or particular fiscal period is referred to in this subsection as the “specified taxation year”) a member of which is, at the end of the period, a foreign affiliate of a taxpayer,
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(a) in computing the affiliate’s earnings or loss from the foreign business referred to in that paragraph for the affiliate’s taxation year (referred to in subparagraphs (i) and (ii) as the “preceding taxation year”) that includes the day that is immediately before the beginning of the specified taxation year,
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(b) any property of the operator that is, under that paragraph, deemed to have been disposed of and reacquired by the operator is, for the purposes of this section, deemed to have been disposed of and reacquired by the operator in the same manner and for the same amounts as if that paragraph applied for the purposes of this section.
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[...]
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(5.1) Notwithstanding subsection (5), if, under the income tax laws of a country other than Canada that are relevant in computing the earnings of a foreign affiliate of a taxpayer resident in Canada from an active business carried on by it in a country, no gain or loss is recognized in respect of a disposition (other than a disposition to which subsection (9) applies) by the affiliate of a capital property used or held principally for the purpose of gaining or producing income from an active business to a person or partnership (in this subsection referred to as the “transferee”) that was, at the time of the disposition, a designated person or partnership in respect of the taxpayer, for the purposes of this section,
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[...]
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(8) For the purposes of computing the various amounts referred to in this section,
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(a) the first taxation year of a foreign affiliate, of a corporation resident in Canada, that is formed as a result of a foreign merger (within the meaning assigned by subsection 87(8.1) of the Act) is deemed to have commenced at the time of the merger, and a taxation year of a predecessor corporation (within the meaning assigned by subsection 5905(3)) that would otherwise have ended after that time is deemed to have ended immediately before that time; and
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(b) if subsection 91(1.2) of the Act applies at any particular time in respect of a foreign affiliate of a corporation, the various amounts are to be computed, in respect of attributed amounts for the stub period in respect of the particular time, as if
[...]
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[...]
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(9) If a foreign affiliate of a taxpayer has been liquidated and dissolved (otherwise than as a result of a foreign merger within the meaning assigned by subsection 87(8.1) of the Act), for the purposes of computing the various amounts referred to in this section, the following rules apply:
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[...]
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(10) Where
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(a) the net earnings or net loss for a taxation year of a foreign affiliate of a corporation resident in Canada from an active business carried on in a country other than Canada would otherwise be included in the affiliate’s taxable earnings or taxable loss, as the case may be, for the year,
for the purposes of this Part, such net earnings or net loss shall be included in the affiliate’s exempt earnings or exempt loss, as the case may be, for the year and not in the affiliate’s taxable earnings or taxable loss, as the case may be, for the year.
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[...]
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(11.2) For the purposes of this Part, a foreign affiliate of a corporation is, at any time, deemed not to be resident in a country with which Canada has entered into a comprehensive agreement or convention for the elimination of double taxation on income unless
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[...]
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(b) the affiliate would, at that time, be a resident of that country for the purpose of the agreement or convention if the affiliate were treated, for the purpose of income taxation in that country, as a body corporate;
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[...]
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(d) the affiliate would, at that time, be a resident of that country, as provided by paragraph (a), (b) or (c) if the agreement or convention had entered into force.
-
[...]
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(14) For the purposes of the description of C in paragraph (a) of the description of X in subsection (13) and the description of Q in paragraph (a) of the description of Y in subsection (13), the amount by which the underlying foreign tax or the hybrid underlying tax, as the case may be, of the affiliate in respect of the other taxpayer at the end of the year would have increased if a disposition (referred to in this subsection as the “notional actual disposition”) deemed under paragraph 128.1(1)(b) of the Act of any property by the affiliate had been an actual disposition of the property by the affiliate is the total of all amounts each of which is the amount, if any, by which
[...]
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(15) For the purposes of the description of E in paragraph (a) of the description of X in subsection (13) and the description of S in paragraph (a) of the description of Y in subsection (13), the amount by which the underlying foreign tax or the hybrid underlying tax, as the case may be, of the affiliate in respect of the other taxpayer at the end of the year would have decreased if a disposition (referred to in this subsection as the “notional actual disposition”) deemed under paragraph 128.1(1)(b) of the Act of any property by the affiliate had been an actual disposition of the property by the affiliate is the total of all amounts each of which the amount, if any, by which
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(a) the amount (determined on the assumption that the notional actual disposition occurred at the time of the deemed disposition) that can reasonably be considered to be the amount of income or profits tax that the affiliate would, because of the notional actual disposition, have had refunded to it by the government of a particular country (other than Canada), in addition to any other income or profits tax otherwise refundable by that government, in relation to the loss or capital loss, as the case may be, of the affiliate from the notional actual disposition
[...]
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(b) the amount that can reasonably be considered to be the portion of the notional income or profits tax refundable to the affiliate by the government of the particular country in relation to the loss or capital loss, as the case may be, of the affiliate from the notional actual disposition (determined on the assumptions that the notional actual disposition occurred immediately after the time that is immediately after the time of the deemed disposition and that the notional income or profits tax refundable to the affiliate by the government of the particular country in relation to the notional actual disposition is equal to the amount determined by paragraph (a)) that, because of a comprehensive agreement or convention for the elimination of double taxation on income between the government of the particular country and the government of any other country, would not have been refundable by the government of the particular country.
