Income Tax Regulations — 5907
der 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), (i) to the extent that the income or profits increases the net earnings included in the exempt earnings of the transparent affiliate, (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 (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 net earnings that are included in the exempt earnings of the particular affiliate, (ii) to the extent that the income or profits increases the hybrid surplus or reduces the hybrid deficit of the transparent affiliate, (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 (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 (iii) to the extent that the income or profits increases the net earnings included in the taxable earnings of the transparent affiliate, (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 (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 net earnings that are included in the taxable earnings of the particular affiliate; and (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, (i) such loss is deemed to be a loss of the particular affiliate, (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, (ii