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The contemporaneous Technical Explanation of the Treaty
prepared by the Treasury Department and submitted to the Senate
Foreign Relations Committee for its consideration prior to
ratification is consistent with my interpretation of the Treaty.
The Technical Explanation states in pertinent part:
Paragraph 7 provides a definition for the term
"attributable to." Profits "attributable to" a
permanent establishment are those derived from the
assets or activities of the permanent establishment.
Paragraph 7 does not preclude Canada or the United
States from using appropriate domestic tax law rules of
attribution. * * * [U.S. Dept. of the Treasury,
Technical Explanation of Convention With Respect to
Taxes on Income and on Capital, Sept. 26, 1980, U.S.-
Can., as amended, at 13 (Apr. 26, 1995) (emphasis
added.)2]
Provisions substantially similar to section 842(b) were
already in the Code at the time the Canadian Treaty was signed
and ratified.
Under the regime of section 813, which was in effect in 1984
when the Treaty was ratified and became effective, a foreign life
insurance company's income that was effectively connected with
2The majority narrowly reads the Technical Explanation's use
of domestic tax law rules of attribution as being limited to
paragraph 7 of article VII of the Treaty. See majority op. p.
36. However, paragraph 7 of article VII of the Treaty itself
applies to the entire Convention:
7. For the purposes of the Convention, the business
profits attributable to a permanent establishment shall
include only those profits derived from the assets or
activities of the permanent establishment. [Emphasis
added.]
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