Income Tax Act — I-3.3 212
censor in respect of a particular relevant royalty arrangement has an obligation to pay or credit an amount, either immediately or in the future and either absolutely or contingently, to a person or partnership, in respect of a specified royalty arrangement, and either of the following additional conditions is met: (A) the amount is determined, in whole or in part, by reference to (I) an amount paid or credited, or an obligation to pay or credit an amount, in respect of a relevant royalty arrangement, or (II) one or more of the fair market value of, any revenue, profits, income, or cash flow from, or any other similar criteria in respect of, a particular property, if a right in respect of the property is granted under the particular lease, licence or similar agreement, or (B) it can reasonably be concluded that the particular relevant royalty arrangement was entered into, or was permitted to remain in effect, because (I) the specified royalty arrangement was entered into or was permitted to remain in effect, or (II) it was anticipated that the specified royalty arrangement would be entered into or remain in effect, and (ii) either the person or partnership (A) does not deal at arm’s length with the taxpayer, or (B) deals at arm’s length with the taxpayer, if it can reasonably be concluded that one of the main purposes of the specified royalty arrangement was (I) to reduce or avoid the tax payable under this Part in respect of the particular amount, or (II) to avoid the application of subsection (3.91); and (c) the tax that would be payable under this Part in respect of the particular amount, if the particular amount were paid or credited to an ultimate licensor rather than the immediate licensor, is greater than the tax payable under this Part (determined without reference to this subsection and subsection (3.91)) in respect of the particular amount. Back-to-back arrangement — rents, royalties, similar payments (3.91) If this subsection applies at any time in respect of a taxpayer, then, for the purposes of paragraph (1)(d), the taxpayer is deemed, at that time, to pay to each ultimate licensor an amount — of the same character as the particular amount referred to in paragraph (3.9)(a) — determined for each particular ultimate licensor by the formula (A × B/C) × (D – E)/D where A is the particular amount referred to in paragraph (3.9)(a); B is (a) the portion of the amount referred to in paragraph (3.9)(a) that is demonstrated, to the satisfaction of the Minister, to be reasonably allocable to the particular ultimate licensor, and (b) if an amount is not demonstrated, to the satisfaction of the Minister, to be reasonably allocable to each particular ultimate licensor, one; C is (a) the total of all amounts, each of which is the portion of the amount referred to in paragraph (3.9)(a) that is demonstrated, to the satisfaction of the Minister, to be reasonably allocable to each ultimate licensor, and (b) if an amount is not demonstrated, to the satisfaction of the Minister, to be reasonably allocable to each particular ultimate licensor, the number of ultimate licensors; D is (a) if an amount is not demonstrated, to the satisfaction of the Minister, to be reasonably allocable to each particular ultimate licensor, the highest rate of tax that would be imposed under this Part on the particular amount referred to in paragraph (3.9)(a) if the particular amount were paid by the taxpayer to any of the ultimate licensors at that time, and (b) in any other case, the rate of tax that would be imposed under this Part on the particular amount referred to in paragraph (3.9)(a) if the particular amount were paid by the taxpayer to the particular ultimate licensor at that time; and E is the rate of tax imposed under this Part at that time on the immediate licensor in respect of the particular amount, referred to in paragraph (3.9)(a), paid or credited to the immediate licensor. Back-to-back arrangement — character substitution (3.92) Subsectio