Where a non-treaty country subsidiary of a Canadian corporation manufactures or process goods outside Canada with no purchasing or processing of raw materials taking place in Canada, and it appoints its Canadian parent as agent to sell its products in Canada as well as outside Canada in consideration for a sales-based commission and with authority granted to its parent to negotiate and conclude sales contracts in its name, RC will ignore the agency relationship with the parent and consider the subsidiary to have Canadian business income equal to all income from Canadian sales of its product minus costs incurred to earn that income. Such costs generally will include a notional cost of sales (based on the fair market value of the goods manufactured or processed), commissions and other expenses that could reasonably be attributed to the Canadian business activity.
