Foreign income taxes imposed on business income which is allocated to a provincial PE generally is non-creditable

The provinces do not accord a foreign tax credit for foreign taxes imposed on business income because, from their perspective, they only impose tax on income which is allocated to provincial permanent establishments under the Reg. 400 rules. There thus is an obvious problem if in fact foreign income tax is imposed on such business income. This happens where the foreign rules for allocating business income are different from the Canadian and provincial rules.

Neal Armstrong. Summary of Kyle B. Lamothe, "The Missing Provincial Tax Credit for Foreign Business-Income Tax," Canadian Tax Focus, Vol. 6, Number 2, May 2016, p. 10 under s. 126(2).