The North West Life Assurance Company of Canada - Page 47

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            applies an entirely new yield to all of the branch's assets not                            
            just to the additional imputed assets.  Prior sections 819(a) and                          
            813, on the other hand, imputed additional income for just those                           
            deemed assets.                                                                             
                  We recognize that a convention, like a constitution, is a                            
            dynamic instrument, drafted to take account of changing                                    
            conditions and expectations.  See Day v. Trans World Airlines,                             
            Inc., 528 F.2d at 35; Maximov v. United States, 299 F.2d at 568.                           
            If we were to accept respondent's argument, however, the United                            
            States could, through various amendments to the Internal Revenue                           
            Code, always eliminate unilaterally the separate-entity                                    
            principles in Article VII, paragraph (2) without ever violating                            
            the Canadian Convention.                                                                   
                  Nor are we are persuaded that the circumstances herein are                           
            exceptional.  While paragraph 23 does not prescribe when                                   
            circumstances are considered exceptional, we do have other                                 
            guidance as to when such circumstances may exist.  Paragraph 11                            
            of the Model Commentaries states that:                                                     
                  11.  In the great majority of cases, trading accounts                                
                  of the permanent establishment * * * will be used by                                 
                  the taxation authorities concerned to ascertain the                                  
                  profit properly attributable to that establishment.                                  
                  Exceptionally there may be no separate accounts (cf.                                 
                  paragraphs 23 to 27 below). * * * [Emphasis added.]                                  
            The above language suggests that other methods may only be                                 
            adopted when a permanent establishment does not have any                                   






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Last modified: May 25, 2011