CRA shows some flexibility as to allocating out of Canada net premiums

Reg. 403(4), in its application to a non-life insurer whose only permanent establishments are in Canada but which earns net premiums from insuring risks outside Canada (“out of Canada net premiums,” or “OCNP”), requires the insurer to allocate the ONCP to the provinces for the Canadian permanent establishments to which they are “reasonably attributable in the circumstances.”

CRA has indicated some flexibility in applying the quoted phrase. It stated that the phrase “denotes … a direct causal connection … between the OCNP and the PE taking in account all the applicable facts of the case.” However:

[W]here a taxpayer has made an allocation under subsection 403(4) and the taxpayer’s approach is reasonable, the CRA should not require the taxpayer to use a different method of allocation. …

[T]he allocation of the OCNP based on where the policies are underwritten … appears to be a reasonable method. Similarly, allocation of the OCNP on some other basis, such as where the contracts are negotiated or serviced … may also be reasonable … .

Neal Armstrong. Summary of 24 October 2018 Internal T.I. 2018-0741041I7 under Reg. 403(4).