23 January 2008 Internal T.I. 2007-0262371I7 - Part XIV tax when there is no PE

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Will Canada charge Part XIV tax (branch tax) to a U.S. entertainment company that carries on business in Canada but not through a permanent establishment?

Position: No

Reasons: The treaty prevents Canada from charging branch tax unless there is a PE.

									January 23, 2008

	Steve Carscadden						HEADQUARTERS
	Senior International Officer				Income Tax Rulings
	Small & Medium Enterprises Directorate	  	Directorate
	Compliance Programs Branch
	117 Kent Street						S.E. Thomson
	Ottawa ON  K1A 0L5					(613) 957-2122

									2007-026237

Part XIV tax on non-resident entertainment company

We are writing in response to your query on December 5, 2007 to Legislative Policy Directorate. You ask whether Canada can charge Part XIV tax (i.e. "branch tax" under section 219 of the Income Tax Act) to a U.S. entertainment company (a "Star Company") that does not have a permanent establishment in Canada. The Star Company put on a concert in Canada by a famous entertainer, and has therefore carried on business in Canada. The Star Company maintains that, under the Canada-U.S. Tax Convention (the "Treaty"), Canada cannot levy branch tax on the company unless the company carries on business through a permanent establishment in Canada.

OUR VIEWS

Canada's position is that where there is an article in the treaty such as Article X(5) of the Treaty that prohibits Canada from taxing "undistributed profits", Canada cannot charge branch tax, unless the particular treaty has a provision such as Article X(6) of the Treaty to override that result. Article X(6) of the Treaty provides that Canada can charge branch tax, albeit to a limited extent, if the corporation carries on business in Canada through a permanent establishment. Therefore, if the Star Company did not have a permanent establishment in Canada, Canada cannot apply branch tax, regardless of Article XVI [Artistes and Athletes] of the Treaty.

We trust we have been of assistance.

Yours truly,

Olli Laurikainen, Manager
For Director
International & Trusts Division
Income Tax Rulings Directorate

Cc: Carole Plouffe, Film Advisory Services Section