The respondent, Crown Forest, rented barges from Norsk, a Bahamian company with its sole office in the United States.
Crown Forest withheld 10 percent tax on the rental payments, claiming Norsk was a resident of the U.S. under the Canada-United States Income Tax Convention (1980).
The Minister assessed the withholding tax at 25 percent, arguing Norsk was not a U.S. resident.
The Supreme Court of Canada allowed the Crown's appeal, holding that Norsk's tax liability in the U.S. was based on its source income effectively connected with a U.S. trade or business, not on world-wide income.
Therefore, Norsk did not meet the criteria for residency under Article IV of the Convention, and the 25 percent withholding tax applied.