Income Tax Regulations — 5907
es 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, (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, (i) there is to be added to the amount determined under paragraph (a) of the definition earnings in subsection (1), after adjustment in accordance with subsections (2) to (2.2), (A) where the operator is the affiliate, the total of (I) the amount, if any, by which the total determined under sub-subclause (ii)(A)(I)2 in respect of the operator for the preceding taxation year exceeds the total determined under sub-subclause (ii)(A)(I)1 in respect of the operator for that year, and (II) if the operator was deemed under paragraph 95(2)(k.1) of the Act to have, at the end of the preceding taxation year, disposed of property owned by it that was used or held by it in the course of carrying on the foreign business in that year, the amount that is the total of all amounts each of which is determined by the formula (A – B) – C where A is the fair market value, immediately before the end of that year, of a property deemed because of that paragraph to have been disposed of, B is the amount determined under paragraph (a) of the definition relevant cost base in subsection 95(4) of the Act in respect of the property, in respect of the taxpayer, immediately before the time of the disposition, and C is the amount, if any, of the capital gain determined in respect of the disposition of the property at that time, and (B) where the operator is the partnership, the amount determined under subsection 5908(13); and (ii) there is to be added to the amount determined under paragraph (a) of the definition loss in subsection (1), (A) where the operator is the affiliate, the total of (I) the amount, if any, by which 1 the total of all amounts each of which is an amount deemed under paragraph 95(2)(k.1) of the Act to have been claimed under any of paragraphs 20(1)(l), (l.1) and (7)(c), and subparagraphs 138(3)(a)(i), (ii) and (iv), of the Act (each of which provisions is referred to in this subparagraph as a “reserve provision”) in computing the income from the foreign business for the preceding taxation year exceeds 2 the total of all amounts each of which is an amount actually claimed by the operator as a reserve in computing its income from the foreign business for that year that can reasonably be considered to be in respect of amounts in respect of which a reserve could have been claimed under a reserve provision on the assumption that the operator could have claimed amounts in respect of the reserve provisions for that year, and (II) the total of all amounts each of which is the amount, if any, by which the amount determined under the description of B in the formula in subclause (i)(A)(II) in respect of a property described in that subclause exceeds the amount determined under the description of A in the formula in that clause in respect of the property, and (B) where the operator is the partnership, the amount determined under subsection 5908(13); and (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. (3) For the purposes of