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Convention and section 842(b) are consistent, petitioner concedes
that section 842(b) applies in this case and that it owes the
income and branch profits tax as determined by respondent in her
statutory notices of deficiency.
The parties present various alternative arguments based on
provisions of Article VII and Article XXV. In deciding whether
petitioner is entitled to relief from section 842(b) as a result
of the Canadian Convention, we must determine whether:
1. Section 842(b), in requiring petitioner to report a
minimum amount of ECNII, conflicts with the requirements of
paragraphs 1, 2, and 7 of Article VII on how to determine
the profits attributable to a permanent establishment;
2. section 842(b) violates paragraph 5 of Article VII,
which requires a consistent method of profit attribution to
be applied unless a good and sufficient reason to the
contrary exists; or
3. section 842(b) violates Article XXV, paragraph (6) by
levying taxation less favorably on petitioner than the
Internal Revenue Code levies taxation on U.S. residents
carrying on the same activities.
We discuss these issues in the context of the relevant convention
Articles. The issues before us are of first impression.
III. Principles of Convention Obligations
Before addressing the parties' arguments pertaining to
specific convention provisions, we consider the principles for
interpreting conventions.
The goal of convention interpretation is to "give the
specific words of a * * * [convention] a meaning consistent with
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