Income Tax Act — I-3.3 95
in which the business is principally carried on, or (iii) if the affiliate is related to a corporation, under the laws of the country under whose laws that related corporation is governed and any of exists, was (unless that related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all those countries are members of the European Union. Definition of specified property (2.32) For the purposes of subsection (2.31), specified property , of a foreign affiliate, means a property that is owned by the affiliate for more than 10 days and that is (a) a share of the capital stock of a corporation resident in Canada; (b) a property traded on a stock exchange located in Canada and not traded on a stock exchange located in the jurisdiction in which the affiliate is resident; or (c) a debt obligation (i) of a corporation resident in Canada, (ii) of a trust or partnership, units of which are traded on a stock exchange located in Canada, or (iii) of, or guaranteed by, the Government of Canada, the government of a province, an agent of a province, a municipality in Canada or a municipal or public body performing a function of government in Canada. Application of paragraph (2)(a.3) (2.4) Paragraph 95(2)(a.3) does not apply to a foreign affiliate of a taxpayer in respect of its income derived directly or indirectly from indebtedness to the extent that (a) the income is derived by the affiliate in the course of a business conducted principally with persons with whom the affiliate deals at arm’s length carried on by it as a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, the activities of which are regulated under the laws (i) of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued and of each country in which the business is carried on through a permanent establishment in that country, (ii) of the country in which the business is principally carried on, or (iii) if the affiliate is related to a corporation, of the country under the laws of which that related corporation is governed and any of exists, was (unless that related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union, and (b) all the following conditions are satisfied: (i) the income is derived by the affiliate from trading or dealing in the indebtedness (which, for this purpose, consists of income from the actual trading or dealing in the indebtedness and interest earned by the affiliate during a short term holding period on indebtedness acquired by it for the purpose of the trading or dealing) directly or indirectly with persons (in this subsection referred to as “regular customers”) that (A) deal at arm’s length with the affiliate, and (B) are resident, or carry on business through a permanent establishment, in a country other than Canada, (ii) the affiliate has a substantial market presence in the country, and (iii) one or more persons that deal at arm’s length with the affiliate and are resident, or carry on business through a permanent establishment, in the country (A) carry on a business (I) that competes in the country with the business of the affiliate, and (II) the activities of which are regulated under the laws of the country or, where the country is a member of the European Union, any country that is a member 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, a