Avoiding a services PE by seconding employees to the source jurisdiction affiliate is very difficult to achieve

In a 25 February 2014 Head Office memo (2013-0475161I7), CRA indicated that if employees of a US company (USco) have been seconded to Canadian affiliates, their services are not counted in determining whether USco has either a construction site permanent establishment (Art. V, para. 3) or a services PE under para. 9 (since their activities now are those of the Canadian affiliates).  In this regard, Nitikman notes, after discussing some Indian cases including Morgan Stanley, Centrica and Bamford, that "the case law suggests that a true secondment is difficult to achieve," as the employees invariably will want to maintain their benefits qua employee with USco (e.g., pension plan or insurance).

Nitikman disagrees with a statement in the memo that "if USCo does not have a [construction site] PE under paragraph 3 of Article V, then all of the services rendered in Canada, including those rendered at the construction site, can be considered when making a determination under paragraph 9" respecting a services PE, as this contradicts a statement of the US Senate Joint Committee staff (as well as other commentary) to the effect that "paragraph 9 does not apply to construction services that do not meet the requirements of paragraph 3 for permanent establishment."

Neal Armstrong.  Summary of Joel A. Nitikman, "More on Services PEs – What is a Connected Project?," Canadian Tax Journal, (2014) 62:2, 317-82 under Treaties – Art. 5.