All the film-rental revenues of the Canadian branch of the U.S. plaintiff were exempted from withholding tax by regulations 802 and 805(1), the court being satisfied that the rental of films in Canada formed an essential and integral part of the Canadian business of the plaintiff. "[T]he Canadian organization was by no means a mere token presence whose real purpose was merely to avoid Part XIII tax."
An argument of the Crown that the case should be approached as if the U.S. head office were charging a commission or rental to its Canadian branch on the amount of Canadian sales was rejected for the reason that "a legal entity cannot rent to or contract with itself."
It was indicated, obiter, that the Crown might have succeeded in challenging the method of computation of the Canadian branch profits as being unduly artificial, if the Crown had so chosen. Charges to the branch were adjusted each year to ensure that in each year the branch's net income was 1.7% of its revenues.