Income Tax Regulations — 5907
ybrid underlying tax of the shareholder affiliate, and (III) the portion of the amount so paid that can reasonably be regarded as relating to an amount deducted from the taxable surplus or included in the taxable deficit of the transparent affiliate is, at the end of the year to which the loss or the tax credit relates, to be deducted from the taxable surplus or added to the taxable deficit, as the case may be, of the shareholder affiliate and be added to the underlying foreign tax of the shareholder affiliate, and (B) in respect of the transparent affiliate, the amount is deemed to be a refund to the transparent affiliate, for the year to which the loss or the tax credit relates, of income or profits tax in respect of the loss or the tax credit; and (c) for the purposes of paragraph (b), any amount paid by a particular transparent affiliate in respect of the shareholder affiliate to another transparent affiliate in respect of the shareholder affiliate in respect of any income or profits tax that would have been payable by the particular transparent affiliate for the year had it been liable, and no other person had been liable, for income or profits tax in respect of income or profits of the transparent affiliate is deemed to have been paid in respect of such tax by the particular transparent affiliate to the shareholder affiliate and to have been paid in respect of such tax by the shareholder affiliate to the other transparent affiliate. (1.1) For the purposes of this Part, if, under, the income tax laws of a country other than Canada, a group (in this subsection referred to as the “consolidated group”) of two or more foreign affiliates of a corporation resident in Canada determine their liabilities for income or profits tax payable to the government of that country for a taxation year on a consolidated or combined basis and one of the affiliates (in this subsection referred to as the “primary affiliate”) is responsible for paying, or claiming a refund of, such tax on behalf of itself and the other affiliates (in this subsection referred to as the “secondary affiliates”) that are members of the consolidated group, the following rules apply: (a) in respect of the primary affiliate, (i) any such income or profits tax paid by the primary affiliate for the year shall be deemed not to have been paid and any refund to the primary affiliate of income or profits tax otherwise payable by it for the year shall be deemed not to have been made, (ii) any such income or profits tax that would have been payable by the primary affiliate for the year if the primary affiliate had no other taxation year and had not been a member of the consolidated group shall be deemed to have been paid for the year, (iii) to the extent that (A) the income or profits tax that would otherwise have been payable by the primary affiliate for the year on behalf of the consolidated group is reduced by virtue of any loss of the primary affiliate for the year or any previous taxation year, or (B) the primary affiliate receives, in respect of a loss of the primary affiliate for the year or a subsequent taxation year, a refund of income or profits tax otherwise payable for the year by the primary affiliate on behalf of the consolidated group, the amount of such reduction or refund, as the case may be, shall be deemed to have been received by the primary affiliate as a refund for the year of the loss of income or profits tax in respect of the loss, (iv) any such income or profits tax that would have been payable by a secondary affiliate for the year if the secondary affiliate had no other taxation year and had not been a member of the consolidated group shall at the end of the year, (A) to the extent that such income or profits tax would otherwise have reduced the net earnings included in the exempt earnings of the secondary affiliate, be deducted from the exempt surplus or added to the exempt deficit, as the case may be, of the primary affiliate, (A.1) to the extent tha