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Paragraph 7 does not preclude Canada or the United
States from using appropriate domestic tax law rules of
attribution. The "attributable to" definition does
not, for example, preclude a taxpayer from using the
rules of section 1.864-4(c)(5) of the Treasury
Regulations to assure for U.S. tax purposes that
interest arising in the United States is attributable
to a permanent establishment in the United States.
(Interest arising outside the United States is
attributable to a permanent establishment in the United
States based on the principles of Regulations sections
1.864-5 and 1.864-6 and Revenue Ruling 75-253, 1975-2
C.B. 203.) Income that would be taxable under the Code
and that is "attributable to" a permanent establishment
under paragraph 7 is taxable pursuant to Article VII,
however, even if such income might under the Code be
treated as fixed or determinable annual or periodical
gains or income not effectively connected with the
conduct of a trade or business within the United
States. The "attributable to" definition means that
the limited "force-of-attraction" rule of Code section
864(c)(3) does not apply for U.S. tax purposes under
the Convention. [Technical Explanation by the Treasury
Department of the Convention Between the United States
of America and Canada with Respect to Taxes on Income
and on Capital Signed at Washington, D.C. on September
26, 1980, as Amended by the Protocols Signed on June
14, 1983 and March 28, 1984, 4 Roberts & Holland,
Legislative History of United States Tax Conventions,
p. 1020, 1032 (1986); 1986-2 C.B. 275, 279.]
In the alternative, respondent infers from the absence of any
reference in the Technical Explanation to a conflict between the
Canadian Convention and prior section 819(a) of the Internal
Revenue Code of 195410 that Canada implicitly accepted that
attribution rules such as section 842(b) would apply.
Nevertheless, we are satisfied that petitioner's
construction of the separate-entity principle of Article VII,
10Congress enacted sec. 819(a) as part of the Life Insurance
Company Income Tax Act of 1959, Pub. L. 86-69, 73 Stat. 136.
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