Income Tax Act — I-3.3 (a)
investment business of a foreign affiliate of a taxpayer means a business carried on by the foreign affiliate in a taxation year (other than a business deemed by subsection (2) to be a business other than an active business carried on by the foreign affiliate and other than a non-qualifying business of the foreign affiliate) the principal purpose of which is to derive income from property (including interest, dividends, rents, royalties or any similar returns or substitutes for such interest, dividends, rents, royalties or returns), income from the insurance or reinsurance of risks, income from the factoring of trade accounts receivable, or profits from the disposition of investment property, unless it is established by the taxpayer or the foreign affiliate that, throughout the period in the taxation year during which the business was carried on by the foreign affiliate, (a) the business (other than any business conducted principally with persons with whom the affiliate does not deal at arm’s length) is (i) a business 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 (A) of each country in which the business is carried on through a permanent establishment in that country and 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, (B) of the country in which the business is principally carried on, or (C) if the affiliate is related to a non-resident corporation, of the country under whose laws that non-resident corporation is governed and any of exists, was (unless that non-resident 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, or (ii) the development of real property or immovables for sale, the lending of money, the leasing or licensing of property or the insurance or reinsurance of risks, (b) either (i) the affiliate (otherwise than as a member of a partnership) carries on the business (the affiliate being, in respect of those times, in that period of the year, that it so carries on the business, referred to in paragraph (c) as the “operator”), or (ii) the affiliate carries on the business as a qualifying member of a partnership (the partnership being, in respect of those times, in that period of the year, that the affiliate so carries on the business, referred to in paragraph (c) as the “operator”), and (c) the operator employs (i) more than five employees full time in the active conduct of the business, or (ii) the equivalent of more than five employees full time in the active conduct of the business taking into consideration only (A) the services provided by employees of the operator, and (B) the services provided outside Canada to the operator by any one or more persons each of whom is, during the time at which the services were performed by the person, an employee of (I) a corporation related to the affiliate (otherwise than because of a right referred to in paragraph 251(5)(b)), (II) in the case where the operator is the affiliate, 1 a corporation (referred to in this subparagraph as a “providing shareholder”) that is a qualifying shareholder of the affiliate, 2 a designated corporation in respect of the affiliate, or 3 a designated partnership in respect of the affiliate, and (III) in the case where the operator is the partnership described in subparagraph (b)(ii), 1 any person (referred to in this subparagraph as a “providing member”) who is a qualifying member of that partnership, 2 a designated corporation in respect of the affiliate, or 3 a designated partnership in respect of the affiliate, if the corporations referred to i