107 T.C. No. 19
UNITED STATES TAX COURT
THE NORTH WEST LIFE ASSURANCE COMPANY OF CANADA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4694-94. Filed December 12, 1996.
P, a Canadian insurance company, operated through
a permanent establishment in the United States for
purposes of the income tax convention between the
United States and Canada. P reported its net
investment income effectively connected with its
conduct of an insurance business within the United
States pursuant to sec. 842(a), I.R.C., without regard
to the minimum amount of net investment income that
sec. 842(b), I.R.C., treated as effectively connected.
P claimed under the Convention With Respect to Taxes on
Income and on Capital, Sept. 26, 1980, U.S.-Can.,
T.I.A.S. No. 11087, 1986-2 C.B. 258 (Canadian
Convention), to be exempt from sec. 842(b), I.R.C.
Held, art. VII(2) of the Canadian Convention requires
that profits attributed to a permanent establishment be
measured based on the permanent establishment's facts
and by reference to the establishment's separate
accounts insofar as those accounts represent the real
facts of the situation. Held, further, sec. 842(b),
I.R.C. in prescribing a statutory minimum amount of net
investment income that must be treated as effectively
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