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Respondent argues that paragraph 23 of the Model
Commentaries permits the adoption of formulas if any one of the
following circumstances is satisfied: (1) Formulas are found to
be more convenient or administratively necessary; (2) the
permanent establishment lacks adequate accounts by which to
determine the attributable profits; (3) the other method is
customary; (4) the permanent establishment is a foreign insurance
enterprise; and (5) an exceptional need for the method is
demonstrated. In respondent's view, each circumstance is
satisfied in the instant case, and section 842(b) is a
permissible method by which to determine attributable profits
within the meaning of the Canadian Convention. The amicus curiae
brief submitted by the Government of Canada asserts that when
contracting parties to a tax convention intend to permit the use
of formulas to determine profits of a permanent establishment
engaged in the insurance business, the convention will contain a
specific provision to that effect.
We need not decide whether Article VII, paragraph (2)
permits the use of formulas in determining the profits
attributable to a permanent establishment. As a preliminary
matter, we find respondent's reliance on paragraph 23 of the
Model Commentaries to be misplaced. We think respondent gives
paragraph 23 too broad a reading. Our reading leads us to the
conclusion that, at a minimum, before other methods (other than
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