Canco has both qualifying active business income from a Canadian business that is connected with an active trade or business (the connected business) of its wholly-owning US parent (USco) and also non-qualifying income of some kind, and pays interest to USco (which is not a qualifying person) on a debt owing to USco. CRA indicated that it will treat an interest payment from Canco to USco as being derived by USco in connection with USco's active trade or business in the United States for purposes of Art. XXIX A, para. 3 of the Canada-US Convention if
(1) the payment is in respect of indebtedness that was incurred exclusively for the purpose of earning income from Canco's connected business, or (2) Canco can establish that the interest payment was funded out of the earnings of the connected business.