CRA provides written CTF Roundtable Responses including on LOB and base erosion

CRA has provided its written responses to the technical questions posed at last week’s Annual CTF Conference Roundtable, including its responses to two questions for which there was insufficient or no time:

• Q.7 CRA has yet to turn down a ruling request respecting the rule in XXIX-A3 of the Canada-U.S. Treaty, which permits a U.S. resident who is not a qualifying person to enjoy Treaty benefits on income derived from Canada that is connected or incidental to a U.S. active business, on the basis that the U.S. business was not relatively "substantial." So far, the high water mark has been a U.S. business with 50% of the revenues and average fixed asset base, and 10% of the employees, of the relevant Canadian business. (In a staccato oral comment, Randy Hewlett stated that more than a "lemonade stand" was required.)
• Q. 8 In 2013-0474431E5, CRA indicated that if Canco seconds employees to its non-resident subsidiary (FA) for use in FA’s services business with arm’s length customers there, CRA will not impute foreign accrual property income to Canco under s. 95(2)(b)(ii) if the employees are provided to FA at cost rather than at, say, a 25% mark-up.  CRA has now clarified that a mark-up over direct salaries will not result in FAPI if there is no profit element, i.e., the mark-up covers other costs – and that whether more than that level of markup would result in an offsetting deduction in computing the FAPI of FA "depends on the proper determination of the related profit to be attributed to the activities of the relevant personnel."

Neal Armstrong. 2014 CTF Conference Roundtable.