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Washington. In addition, petitioner is licensed to transact
business as a life insurance company in 20 other States.
Petitioner's U.S. branch uses a calendar year accounting
period and the accrual method of accounting. Petitioner timely
filed its Federal income tax returns (Forms 1120L) for tax years
1988, 1989, and 1990.
B. Petitioner's Product Mix
Petitioner's U.S. branch operates primarily in the "section
403(b) market", selling individual deferred annuities to school
teachers. Petitioner has the following product mix, measured by
its reserves, during the years at issue:
United States
Individual Annuities Individual Life Policies
1988 97.00% 3.00%
1990 95.60 4.40
Canada
Individual Annuities Individual Life Policies
1988 64.73% 35.27%
1990 68.44 31.56
Petitioner’s U.S. branch sold these products in the United
States, and petitioner's principal office in Vancouver sold them
in Canada.
C. Pricing of Products
Each of petitioner's annuity contracts includes an
accumulation period and a payout period. During the accumulation
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