Paragraph 2 and 3 of Article 7 work to ensure that the portion of business being carried on in the other country are treated in the same manner as a separate business. That means that you need to calculate the profit separately for each country and pay the taxes on the profit to the appropriate country.
In the Canada-Brazil treaty, paragraph 3 simply clarifies that general and administrative expenses form part of the calculation of profit. In other treaties, such as the Canada-Venezuela it is much more specific and will not allow certain expenses (e.g. royalties and fees).
In others (i.e. Canada-US) the treaty is quite specific to say that the deductions will not be permitted unless they are deductible under the tax laws of the country. This is to stop the movement of the expense to another country to make it tax deductible.
This also brings up transfer pricing issues as it is very important that transfers between each country are carried out at a fair market value. Each country has it’s own transfer pricing rules and contemporaneous documentation is required in all cases. For transactions happening between Canada and the US, Japan or Australia, the PATA documentation package is accepted for meeting these provisions.