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: Whether the Company has a PE in the provinces other than Ontario?
Position: Not sufficient information to determine.
XXXXXXXXXX 2004-005926
S. Leung
July 28, 2004
Dear XXXXXXXXXX:
Re: Section 400 of the Income Tax Regulations ("ITR")
We are writing in reply to your letter of January 19, 2004 in which you requested our view as to whether the Company described in the situation below has a permanent establishment ("PE") in Quebec or any province other than Ontario pursuant to section 400 of the ITR.
The Situation
1. The Company is a service organization which provides a wide-range of XXXXXXXXXX services to governments and private industries.
2. It is a federally incorporated company with offices in Ontario. It does not maintain office space or own land in Quebec or New Brunswick.
3. It provided contract employees to work at customer sites in New Brunswick and Quebec in various XXXXXXXXXX functions for a XXXXXXXXXX-year period.
4. Its employees working in Quebec and New Brunswick do not have the right to conclude contracts on behalf of the Company. All contract negotiations and contract signing are done through employees at the Company's Ontario office.
5. The Company had between XXXXXXXXXX employees for the XXXXXXXXXX-year period in question.
6. It has approximately XXXXXXXXXX % of its workforce at customer sites in Quebec and less than XXXXXXXXXX% of its workforce in provinces other than Quebec and Ontario.
The circumstances outlined in your letter relate to a specific fact situation. We note that written confirmation of the tax implications arising out of a particular fact situation are given by this Directorate only where the circumstances or events are the subject matter of an advance income tax ruling request. Please consult the current version of Information Circular IC 70-6, Advance Income Tax Rulings, which can be found on the Canada Revenue Agency ("CRA") website at www.ccra-adrc.gc.ca, for information regarding obtaining an advance income tax ruling. However, we can offer the following general comments which may be helpful to you.
It is a question of fact whether the Company has a PE in Quebec or New Brunswick or both. In order to determine whether such a PE exists in a particular province in a particular situation, we have to examine all the facts and circumstances surrounding that situation. The information supplied in your letter, which is outlined above, is not sufficient for us to make a determination in this regard. It is not clear whether the Company is only a XXXXXXXXXX as it is also mentioned in your letter that the Company provides XXXXXXXXXX services at locations not disclosed in your letter. Our understanding is that XXXXXXXXXX activities can be performed by the employees of a company at the company's premises situated in a particular province. It is also not clear how the Company's employees working in Quebec and New Brunswick are supervised and to whom they are reporting, and whether the supervisors' offices (which could be home offices) could be considered to be PEs of the Company. It should be noted that at one time as many as XXXXXXXXXX employees may have been working in Quebec (i.e., XXXXXXXXXX% x XXXXXXXXXX) and these employees most likely needed some kind of supervision. It is also not clear whether the employees who worked for a period of XXXXXXXXXX years in Quebec or New Brunswick worked at the same place in the same building throughout the XXXXXXXXXX -year period such that that place could be considered to be at their disposal.
The legislation in Quebec that deals with PEs can be found in sections 12 to 16.2 of Chapter III of the Taxation Act of the Province of Quebec. These provisions are similar to a large extent to those found in section 400 of the ITR and Article 5 of the OECD Model Convention. However, these provisions do not assist in shedding light as to whether the Company would be considered to have a PE in Quebec in view of the limited facts outlined above.
The case of Dudney (2000 DTC 6169, FCA) deals with the issue of PEs with respect to the Canada-United States Income Tax Convention. As such, it may be distinguished from the situation outlined above which does not involve a bilateral tax treaty. In addition, it is the CRA's position that the Federal Court decision in Dudney should generally be restricted to its own facts. We do not have sufficient facts to determine whether the Dudney decision would or would not apply to the situation described above.
If the Company is strictly a XXXXXXXXXX providing its employees to work for its clients in the provinces of Quebec and New Brunswick and nothing more, it is debatable whether the Company carries on business in those provinces at the location where its employees perform their duties. In this regard, reference can be made to court cases like Betteridge (99 DTC 1491, TCC) and Fonta (2001 DTC 3698, TCC) that dealt with the issue of whether an enterprise carried on business outside Canada with respect to overseas employment tax credits. Thus, a XXXXXXXXXX may be distinguished from other service companies where our general position is that a service company carries on business where its employees perform the services. However, as there are potentially so many employees of the Company working in Quebec, it is important for us to examine all the facts and circumstances of the situation before a determination can be made as to whether the Company is carrying on business in Quebec through a PE in Quebec. In this regard, even if the CRA were able to make a determination, such determination would not be binding on the revenue authority of the Province of Quebec as provincial taxation is the responsibility of the provincial government and the CRA does not administer the Quebec income tax regime.
We hope that our comments will be of assistance to you.
Yours truly,
Eliza Erskine
Acting Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch
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