- 20 -
of the company from all sources by the mean of all assets of the
company. Sec. 842(b)(4)(B). A company may not revoke the
election without the consent of the Secretary. Sec. 842
(b)(4)(C).
II. Canadian Convention
The Canadian Convention is designed to prevent double
taxation and to avoid fiscal evasion (Preamble to Canadian
Convention). Article VII of the Canadian Convention governs when
and how much of the profits of a qualified Canadian enterprise
are subject to U.S. Federal income tax. The relevant provisions
of Article VII for making such a determination are as follows:
1. The business profits of a resident of a Contracting
State shall be taxable only in that State unless the
resident carries on business in the other Contracting
State through a permanent establishment situated
therein. If the resident carries on, or has carried
on, business as aforesaid, the business profits of the
resident may be taxed in the other State but only so
much of them as is attributable to that permanent
establishment.
2. Subject to the provisions of paragraph 3, where a
resident of a Contracting State carries on business in
the other Contracting State through a permanent
establishment situated therein, there shall in each
Contracting State be attributed to that permanent
establishment the business profits which it might be
expected to make if it were a distinct and separate
person engaged in the same or similar activities under
the same or similar conditions and dealing wholly
independently with the resident and with any other
person related to the resident * * *
3. In determining the business profits of a permanent
establishment, there shall be allowed as deductions
expenses which are incurred for the purposes of the
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NextLast modified: May 25, 2011