- 75 -
its actual income from those assets." In Notice 89-96, 1989-2
C.B. 417, 420, which was issued as interim guidance until
regulations are published, the Commissioner provides that "a
foreign insurance company's minimum effectively connected net
investment income includible in taxable income for the taxable
year shall not exceed its worldwide gross investment income for
the taxable year". Petitioner does not allege that it comes
within this provision.
The ramifications of the majority opinion go well beyond the
resolution of this case. The provisions of the Canadian Treaty
are based on Model Treaty Provisions used in many other treaties.
In essence, the majority nullifies section 842(b). This raises
the distinct possibility that foreign insurance companies with
operations in the United States will have an advantage over
domestic companies. Such a result is clearly contrary to the
Internal Revenue Code and article VII, paragraph (2) of the
Treaty.5 Moreover, the majority's interpretation of article VII,
paragraph (2) raises serious questions about the use of other
statutory methods of allocating the income and expenses of
foreign persons that operate businesses in the United States
5Sec. 842(b) puts foreign insurance companies in the same
situation, taxwise, as comparable domestic companies. It does
not discriminate against foreign companies. On the other hand,
the majority acknowledges that its interpretation of the Treaty
invalidating sec. 842(b) may give Canadian insurance companies,
operating a permanent establishment in the United States, an
economic advantage over U.S. companies. See majority op. p. 55.
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