4 December 2009 GST/HST Interpretation 111635 - Permanent establishments and the election for exempt supplies under section 150 of the Excise Tax Act

Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.

DATE
[December 4, 2009]

TO
[Addressee]

FROM
Doris McMullan
Senior Rulings Officer
Corporate Reorganizations Unit
Excise & GST/HST Rulings Division
14th flr - 320 Queen St
Ottawa, ON K1A 0L5

Case Number: 111635

SUBJECT :	GST/HST INTERPRETATION
		Permanent establishments and the election for exempt supplies under section  150 of the Excise Tax Act

We are responding to your [correspondence] of [mm/dd/yyyy], and your telephone calls on [mm/dd/yyyy]. We apologize for the delay in our response.

Question

Our understanding of the question is whether two non-resident companies with branch operations in Canada are closely related if they are owned/controlled by separate [foreign] parents that are in turn commonly owned/controlled by a separate […][foreign] parent company and whether they can make the section 150 election.

Facts

* The following diagram shows branch operations that are permanent establishments (PEs). These PEs have jointly filed a section 150 election.

* The branch operations are “owned/controlled by” separate [foreign] corporations that are owned by the same corporation.

							Parent Co
							/	\
						       /	 \
						    NRes         NRes
						    Co1		 Co2
						     |	          |
                                                     |            |
						 ______________________
						     |            |
						  NResCo1      NResCo2
						     PE		  PE

						    […]	         […]

Comments

The following comments are based on current legislation and focus on the questions: […]

1) Are these two PEs closely related?

The requirement under section 128, as revised effective November 17, 2005, is that for persons to be closely related, the persons must be corporations and they must satisfy the share ownership requirements set out in that section.

In the case at hand, since the parts of the corporation that are present in Canada are only branches of non-resident corporations, the share-ownership analysis under section 128 would relate to whether NRes Co1 as a whole is closely related to NRes Co2. If their common parent owns 100% of their shares, NRes Co1 and NRes Co2 are closely related under the provisions of sub-paragraph 128(1)(a)(iii).

2) Can these two PEs effect between them a section 150 election?

To make the election under section 150, a person must

* be a member of a closely related group

o definition of closely related group requires the persons in the group to be closely related to each other as set out in section 128
o be resident in Canada
o be a registrant

o be a corporation.

* have a listed financial institution as a member of the group

* make the election with a corporation that is also a member of the group.

As noted above, for an entity to be a party to an election under section 150, the entity must be a person. A PE is part of a person; it is not a person itself. Thus the question we must answer is not if the permanent establishments are eligible to make the election but rather if the corporations of which they are a part are eligible to make the election under section 150.

[…]

[…]. For the purposes of making this election, […][NRes Co1] is a non-resident. Consequently, it does not satisfy the requirements for making an election under section 150.

If you have any questions concerning the preceding comments, please do not hesitate to contact me directly at 613-954-4394.