- 63 -
which precludes the fictional allocation of business profits to
petitioner's permanent establishment." Majority op. p. 39.
I believe that the majority need not have considered
paragraph 2. Attribution of notional income is precluded not by
paragraph 2, but, rather, by the restrictive language of
paragraph 1 set forth above. Paragraph 11 of the Commentary on
Article VII of the Model Double Taxation Convention on Income and
on Capital, Report of the O.E.C.D. Committee on Fiscal Affairs
(1977) (Model Treaty), cited by the majority on page 44,
provides, in part, "It should perhaps be emphasized that the
directive contained in paragraph 2 is no justification for tax
administrations to construct hypothetical profit figures in
vacuo”. (Emphasis added.) It is noteworthy that Article VII,
paragraph 2, of the Model Treaty, which is identical in relevant
respect to the Canadian Convention, does not affirmatively
restrict the use of hypothetical profit figures, but, rather,
only provides no justification to employ fictional profit figures
in calculating the income attributable to a permanent
establishment. It seems unlikely that paragraph 2 could restrict
the use of hypothetical profit figures as the majority opines and
simultaneously provide a potential justification to use such
figures that is sufficiently colorable to require an explicit
O.E.C.D. commentary advising against the practice. Accordingly,
I cannot join the reasoning of the majority.
WHALEN, J., agrees with this concurring opinion.
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