Income Tax Act — I-3.3 18.4
t, is the portion of the amount of the deduction/non-inclusion mismatch arising from the payment that meets the condition in subparagraph (10)(d)(i) or (ii); (b) the deduction component, if any, of the deduction/non-inclusion mismatch is the deduction component of the hybrid financial instrument arrangement in respect of the payment; and (c) the foreign deduction component, if any, of the deduction/non-inclusion mismatch is the foreign deduction component of the hybrid financial instrument arrangement in respect of the payment. Hybrid transfer arrangement — conditions (12) For the purposes of this section and section 12.7, a payment (other than an exempt dealer compensation payment) arises under a hybrid transfer arrangement if (a) the payment arises under, or in connection with, (i) a transaction or series of transactions (referred to in this subsection as the “transfer arrangement”) that includes a loan or a disposition or other transfer by an entity to another entity (referred to in this subsection as the “transferor” and “transferee”, respectively) of all or a portion of a financial instrument (referred to in this subsection as the “transferred instrument”), or (ii) the transferred instrument; (b) any of the following conditions is satisfied: (i) at any time during the transfer arrangement (A) a payer of the payment does not deal at arm’s length with, or is a specified entity in respect of, a recipient of the payment, or (B) the transferor does not deal at arm’s length with, or is a specified entity in respect of, the transferee, or (ii) the payment arises under, or in connection with, a structured arrangement; (c) the payment gives rise to a deduction/non-inclusion mismatch; and (d) it can reasonably be considered that the deduction/non-inclusion mismatch arises (or would arise, if any reason for the mismatch other than the reasons described in subparagraphs (i) and (ii) were disregarded), in whole or in part, because (i) if the payment arises as compensation for a particular payment under the transferred instrument, (A) the tax laws of one country treat all or a portion of the payment as though it has the same character as, or represents, the particular payment, in determining the tax consequences to an entity that is a recipient of the payment but not of the particular payment, and (B) the tax laws of another country treat all or a portion of the payment as a deductible expense of another entity, or (ii) in any other case, (A) the tax laws of one country treat one or more transactions included in the transfer arrangement, either alone or together, as or as equivalent to a borrowing or other indebtedness, or treat all or a portion of the payment as arising under, or in connection with, a borrowing or other indebtedness, and the tax laws of another country do not treat the transaction or transactions, or the payment, as the case may be, in that manner, or (B) the tax laws of one country treat the payment, or any other payment arising under, or in connection with, the transfer arrangement or transferred instrument, as though the payment or other payment, as the case may be, was derived by one entity and the tax laws of another country treat the payment or other payment, as the case may be, as though it was derived by another entity, because of a difference in how the countries treat one or more transactions included in the transfer arrangement, either alone or together. Hybrid transfer arrangement — amount (13) For the purposes of this section and section 12.7, if a payment arises under a hybrid transfer arrangement, (a) the amount of the hybrid transfer mismatch, in respect of the payment, is the portion of the amount of the deduction/non-inclusion mismatch arising from the payment that meets a condition in subparagraph (12)(d)(i) or (ii); (b) the deduction component, if any, of the deduction/non-inclusion mismatch is the deduction component of the hybrid transfer arrangement in respect of the payment; and (c) the foreign