Royalties were payable by Canco to a non-resident for the right to use copyright and trademarks in connection with the design, manufacturing and sale of products in countries in a particular region. Regarding what portion of each royalty payment should be treated as exempted under s. 212(1)(d)(x) as amount deductible in computing the income of Canco from a business carried on in the foreign country, CRA stated:
In general terms, where a royalty payment is deductible in computing the income of a taxpayer, under Part I, from a business carried on partly in Canada and partly in countries other than Canada, for the purpose of paragraph 4(1)(b), the allocation of the payment must be made for each particular country. Ordinarily, such an allocation can be made on the basis of the factual relationship between the deductible royalty payment and the gross income arising from each of the parts of the business that is carried on in a particular country.