The North West Life Assurance Company of Canada - Page 75

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            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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Last modified: May 25, 2011