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respondent's position and hence the deference that the Court is
able to afford to that interpretation.
IV. Article VII of the Canadian Convention
Petitioner argues that paragraphs 1, 2, and 7 of article VII
of the Canadian Convention require that profits be attributed to
its permanent establishment as if the latter were a separate
entity distinct from petitioner's head office, with income
measured by reference to the permanent establishment's own
specific operations. Petitioner goes on to argue that the
statute mandates the application of section 842(b) in all
instances where there is effectively connected investment income.
If the actual income is less than the minimum under the statute,
then the provision applies--a result that, in petitioner's
opinion, conflicts with article VII, paragraphs (1), (2), and
(7), which petitioner interprets to preclude taxing Canadian
companies on a fictional amount that is greater than their actual
income derived from their business in the United States.
Respondent raises various arguments supporting why section
842(b) is consistent with article VII of the Canadian Convention
and contends: (1) Section 842(b) is a permissible method of
attributing profits to a permanent establishment under article
VII; (2) section 842(b) serves as a backstop to section 842(a)
and corrects any underreporting by foreign insurance companies of
their actual ECNII; and (3) the United States Senate, which
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