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We agree with respondent and respondent's expert that the
NAIC form 1A is not the ideal means for reconciling and
identifying all of the income attributable to a permanent
establishment. It does not include a closed, self-contained book
of accounts, reconciliation of any surplus, or information
regarding capital gains or losses. The form is not designed to
identify taxable income but rather to monitor compliance with
State regulatory requirements on trusteed assets. That
conclusion, however, does not resolve the issue before us.
The record is clear that petitioner occasionally exercised
its discretion in moving assets between jurisdictions as
evidenced by petitioner's transfer of its Canadian bonds from its
Canadian operations to its Seattle bank trust account and by the
sale of its stock in a subsidiary to its foreign parent. Through
the testimony of Mr. Putz and Mr. Francis, whom we found to be
informative and credible witnesses, petitioner has established,
however, as a general business practice, that it did not
commingle assets between its Seattle bank trust account and its
Canadian investment portfolio and had separate investment
strategies in each country.
We are satisfied with their explanations of the business
reasons behind petitioner's investment strategy. According to
Mr. Francis' testimony, petitioner's U.S. branch had significant
liquidity demands as a result of its need to balance its 5-year
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