13 July 2010 External T.I. 2010-0370221E5 - Permanent Establishment

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: Where a non-resident corporation carrying on a business through a permanent establishment in one province has two employees who live and work remotely from their homes in another province providing computer consulting services to clients outside that other province, does this constitute a permanent establishment for the corporation in that other province

Position: A question of fact but in this case probably not.

Reasons: The non-resident corporation does not have a permanent establishment in the other province considering the facts (as outlined in the letter).

XXXXXXXXXX 							2010-037022
								Andrea Boyle, CGA
July 13, 2010

Dear XXXXXXXXXX :

Re: Permanent Establishment

I am replying to your email dated June 7, 2010, in which you asked whether or not your corporation has a permanent establishment in XXXXXXXXXX .

The facts as you have described them are as follows:

1. The non-resident corporation has two employees who are Canadian citizens and who live in XXXXXXXXXX and work remotely from their homes.

2. The two employees have no authority to contract for the corporation.

3. The employees provide remote computer consulting services for clients who are in the United States and the corporation does not have any clients in XXXXXXXXXX .

4. The corporation does not have any property (land, buildings, machinery, inventory etc), rental operations, or other activity in XXXXXXXXXX.

5. The corporation files a Federal T2 and has a permanent establishment in XXXXXXXXXX .

The particular situation outlined in your facsimile appears to relate to a factual one, involving specific taxpayers. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be of assistance.

Generally speaking, under the criteria listed in subsection 400(2) of the Income Tax Regulations, if a corporation carries on business through an employee or an agent established in a particular place, it is considered to have a permanent establishment in that place if the employee or agent has general authority to contract for the corporation or has a stock of merchandise owned by the corporation from which the employee or agent regularly fills orders received.

It is a question of fact whether a corporation has a permanent establishment. You have indicated that the two employees in XXXXXXXXXX do not have authority to contract on behalf of the corporation. The employees do not provide consulting services to customers in XXXXXXXXXX; the corporation does not solicit orders or offer anything for sale in XXXXXXXXXX through the employees and does not otherwise carry on business in XXXXXXXXXX . The corporation does not have an office, warehouse or other business premises in XXXXXXXXXX and, under the circumstances described in this case, we would likely not consider the home offices of the employees to be fixed places of business of the corporation. In our view, therefore, it would appear that the corporation does not have a permanent establishment in XXXXXXXXXX . It will be a question of fact whether any income derived from business conducted by employees in XXXXXXXXXX could be attributable to the permanent establishment in XXXXXXXXXX .

We trust that these comments will be of assistance.

Yours truly,

Randy Hewlett
Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch