Rev. Rul. 54-5

Determination of United States and Canadian income of bus companies operating routes across the border.

1. Purpose .-The purpose of this Revenue Ruling is to outline the principles that have been agreed upon between the Internal Revenue Service and the Department of National Revenue of Canada for the determination of the Canadian income of United States bus companies operating routes which enter Canada, and Canadian bus companies operating routes which enter the United States. The use by the respective taxing authorities of uniform principles is necessary to prevent double taxation of income in contravention of Article XVI of the tax convention with Canada.

2. Internal Revenue Code provisions affected .-The principles herein promulgated will be followed by the Internal Revenue Service: (1) in the allowance of Canadian tax credits to domestic bus companies under section 131 of the Internal Revenue Code, including any redetermination of tax when the credit proves incorrect, as provided in section 39.131(c)-1 of Regulations 118 and corresponding provisions of prior regulations; and (2) in the determination, under section 119(e) of the Internal Revenue Code, of the Taxable income of Canadian bus companies operating in the United States, including determinations under section 39.119(e)-2(h) of Regulations 118 and corresponding provisions of prior regulations.

3. Definitions .-For the purpose of this Revenue Ruling, a bus company is defined as a common carrier operating intercity highway passenger buses, along with the usual incidental baggage, express, mail, newspaper, and similar transportation services. An operating `division' is defined as the portion of the operations of a bus company between certain terminal cities or over certain highways, sometimes called a `route,' for which separate revenue and expense accounts are maintained. In case a bus company does not maintain such divisional revenue and expense accounts, the entire company is considered an `operating division' for the purpose of this Revenue Ruling.

4. Determination of Canadian income of a domestic bus company .-In the absence of compelling reasons to the contrary, the portion of the net income of a domestic bus company operating in Canada, attributable to Canadian sources, will be determined by taking an allocable part of the net income of each division operating across the border, in accordance with the following principles:

(a) The portion of the divisional net income attributable to Canadian sources is the ratio of Canadian operating revenues to total operating revenues of such divisions operating across the border, determined as follows:

(1) passenger revenues allocated on a passenger-mile basis; and

(2) baggage, express, newspaper, and miscellaneous revenues allocated on either an actual or bus-mile basis, as appears reasonable.

(b) The taxable net income of each division entering Canada shall be determined as follows:

(1) Operating revenues allocated to divisions as follows:

(i) passenger revenues on a passenger-mile basis; and

(ii) baggage, express, newspaper, and miscellaneous revenues on either an actual or bus-line basis, as appears reasonable.

(2) Operating expenses, other deductions, nonoperating income and unallowable deductions of the company to be:

(i) allocated to divisions on a bus-mile basis, in general, unless specifically identified with a particular division or divisions;

(ii) specifically charged or credited to the appropriate division or divisions where thus identified; or

(iii) allocated on some other appropriate basis where clearly preferable to either of the above.

5. Determination of United States income of a Canadian bus company .-The principles set forth above in paragraph 4 apply similarly to a Canadian bus company operating in the United States, where an election is made as provided in section 39.119(e)-2(h) of Regulations 118, or corresponding provisions of prior regulations.