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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether CCRA's views on the deductibility of notional charges in calculating profits attributable to a permanent establishment have changed in view of a recent OECD discussion paper.
Position: No.
Reasons: As it is discussion paper only, no comments will be provided until final positions are determined. No change in our views for now.
IFA Seminar
May 7, 2001
Question #3 File #2001-007807
In February, the OECD released a draft discussion paper regarding the attribution of income to a permanent establishment. The draft discussion paper regards a branch as if it were a separate enterprise and suggests recognition of "notional expenditures" between the branch and head office. Justice MacDonald's obiter dictum in Cudd Pressure Control Inc. v. The Queen 98 DTC 6630 (FCA) suggests that, in some cases, such an approach is appropriate. This position arguably is not consistent with the Cudd Pressure decision itself nor the CCRA's view as expressed by Michel Hiltz at the 1999 CTF Annual Conference. We have been asked the following questions. Does the CCRA intend to modify its views in light of the OECD position? Have any of these situations been resolved at the competent authority level?
Department's Position
As the draft discussion paper does not represent the final position of the OECD, we are unable to comment on the views expressed in that paper. Our position with respect to the deduction of notional expenses such as those sought to be deducted by Cudd Pressure Control Inc. remains as expressed by Michael Hiltz at the 1999 CTF Annual Conference. To the best of our knowledge, our competent authority has not resolved any situations that dealt with such notional deductions in respect of the attribution of income to a permanent establishment.
Prepared by: Dan Yuen
April 30, 2001
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