Income Tax Act — I-3.3 95
 of the European Union, in the same manner as are the activities of the business of the affiliate, and (B) have a substantial market presence in the country, and, for the purpose of this subsection, an acquisition of indebtedness from the taxpayer shall be deemed to be part of the trading or dealing in indebtedness described in paragraph 95(2.4)(b) where the indebtedness is acquired by the affiliate and sold to regular customers and the terms and conditions of the acquisition and the sale are substantially the same as the terms and conditions of similar acquisitions and sales made by the affiliate in transactions with persons with whom it deals at arm’s length. Application of paragraph (2)(a.3) (2.41) Paragraph (2)(a.3) does not apply to a foreign affiliate of a taxpayer resident in Canada in respect of the foreign affiliate’s income for a taxation year derived, directly or indirectly, from indebtedness of persons resident in Canada or from indebtedness in respect of businesses carried on in Canada (referred to in this subsection as the “Canadian indebtedness”) if (a) the taxpayer is, at the end of the foreign affiliate’s taxation year (i) a life insurance corporation resident in Canada, the business activities of which are subject by law to the supervision of the Superintendent of Financial Institutions or a similar authority of a province, or (ii) a corporation resident in Canada that is a subsidiary controlled corporation of a corporation described in subparagraph (i); (b) the Canadian indebtedness is used or held by the foreign affiliate, throughout the period in the taxation year that that Canadian indebtedness was used or held by the foreign affiliate, in the course of carrying on a business (referred to in this subsection as the “foreign life insurance business”) that is a life insurance business carried on outside Canada (other than a business deemed by paragraph (2)(a.2) to be a separate business other than an active business), the activities of which are regulated (i) under the laws of the country under whose laws the foreign affiliate is governed and any of exists, was (unless the foreign affiliate was continued in any jurisdiction) formed or organized, or was last continued, and (ii) under the laws of the country, if any, in which the business is principally carried on; (c) more than 90% of the gross premium revenue of the foreign affiliate for the taxation year in respect of the foreign life insurance business was derived from the insurance or reinsurance of risks (net of reinsurance ceded) in respect of persons (i) that were non-resident at the time at which the policies in respect of those risks were issued or effected, and (ii) that were at that time dealing at arm’s length with the foreign affiliate, the taxpayer and all persons that were related at that time to the foreign affiliate or the taxpayer; and (d) it is reasonable to conclude that the foreign affiliate used or held the Canadian indebtedness (i) to fund a liability or reserve of the foreign life insurance business, or (ii) as capital that can reasonably be considered to have been required for the foreign life insurance business. Exception re paragraph (2)(a.3) (2.42) If, at any time in a taxation year of a foreign affiliate of a taxpayer referred to in paragraph (2)(a.3), a life insurance corporation resident in Canada is the taxpayer referred to in paragraph (2)(a.3) or is a person who controls, or is controlled by, such a taxpayer, a particular indebtedness or a particular lease obligation of the life insurance corporation is, for the purposes of that paragraph, deemed, at that time, not to be an indebtedness or a lease obligation of a person resident in Canada, to the extent of the portion of the particular indebtedness or lease obligation that can reasonably be considered to have been issued by the life insurance corporation to the foreign affiliate (a) in respect of the life insurance corporation’s life insurance business carried on outside Cana