Clarkson Equipment Ltd. is a manufacturer of construction equipment that is used throughout the world. The factory is located in Windsor, Ontario and the majority of its manufacturing operations take place at that location. In the current year, the Company negotiated a very significant contract with an African country with which Canada has a comprehensive tax treaty. The contract requires not only the provision of the Company's equipment, but instruction and training of the operators as well. Given the magnitude of this contract, Clarkson is considering establishing a subsidiary in the African country to carry out the terms of the agreement. Compare the Canadian tax treatment of income earned if the contract was handled through the Canadian head office with the tax treatment if a non-resident subsidiary is used to carry out the contract.

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The Answer of Clarkson Equipment Ltd. is a manufacturer of construction equipment that is used throughout the world. The factory is located in Windsor, Ontario and the majority of its manufacturing operations take place at that location. In the current year, the Company negotiated a very significant contract with an African country with which Canada has a comprehensive tax treaty. The contract requires not only the provision of the Company's equipment, but instruction and training of the operators as well. Given the magnitude of this contract, Clarkson is considering establishing a subsidiary in the African country to carry out the terms of the agreement. Compare the Canadian tax treatment of income earned if the contract was handled through the Canadian head office with the tax treatment if a non-resident subsidiary is used to carry out the contract.