- 65 -
amounts greater than the actual income derived from their
business in the United States. The majority agrees with
petitioner that article VII, paragraph (2) precludes the
allocation of business profits to petitioner's permanent U.S.
establishment that is in excess of its actual income as reported
in its records. I disagree.
Article VII, paragraph (2) of the Canadian Treaty provides:
2. Subject to the provisions of paragraph 3, where a
resident of a Contracting State carries on business in
the other Contracting State through a permanent
establishment situated therein, there shall in each
Contracting State be attributed to that permanent
establishment the business profits which it might be
expected to make if it were a distinct and separate
person engaged in the same or similar activities under
the same or similar conditions and dealing wholly
independently with the resident and with any other
person related to the resident * * * [Emphasis added.]
This provision of the Canadian Treaty does not restrict U.S.
taxation of profits of a foreign corporation's permanent
establishment to amounts actually earned by the U.S. business as
reflected in its records. Article VII, paragraph (1) of the
Treaty provides that if a Canadian corporation carries on
business in the United States through a permanent establishment,
the United States may tax its profits, "but only so much of them
as is attributable to that permanent establishment." (Emphasis
added.) Article VII, paragraph (2) provides that the amount to
"be attributed to that permanent establishment" is "the business
profits which it might be expected to make if it were a distinct
Page: Previous 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 NextLast modified: May 25, 2011