18 June 2013 Internal T.I. 2011-0393451I7 - Treaty Exemption - Fixed Base available in Canada

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 an individual, who is resident in Ireland but practising XXXXXXXXXX in Canada under a contract for service for approximately one year, is subject to Canadian income tax on his income earned in Canada.

Position: Likely not, under the circumstances.

Reasons: Question of fact. However, it remains difficult to distinguish the current situation from the facts considered by the Federal Court of Appeal in Dudney.

June 18, 2013

XXXXXXXXXX HEADQUARTERS
International Tax Auditor Kimberly Duval
XXXXXXXXXX Tax Service Office 613-946-3553
XXXXXXXXXX

2011-039345

Resident of Ireland - Fixed Base while in Canada

We are writing in response to your letter of January 17, 2011, wherein you requested our views as to whether a particular individual (the "taxpayer"), who was a resident of Ireland but practising XXXXXXXXXX in Canada under a short-term contract for service, would be subject to Canadian income tax on his income earned in Canada.

For purposes of our discussions, we understand that:

(i) the taxpayer was working as an independent contractor on the basis of a short-term contract for service which was signed with a XXXXXXXXXX authority of a particular province in Canada, the terms of which required the taxpayer to perform services at certain XXXXXXXXXX facilities maintained and operated by that provincial XXXXXXXXXX authority; and

(ii) pursuant to paragraph 2 of Article 4 of the Canada-Ireland Tax Convention (the "Convention"), signed on October 8, 2003, the taxpayer was considered a resident of Ireland, and not a resident of Canada, on the basis that both his centre of vital interests and habitual abode were located in Ireland during the period under review. (endnote 1)

As such, our comments will focus on whether the taxpayer, an individual resident in Ireland and not resident in Canada, carried on an independent personal services business in Canada through a fixed base or permanent establishment in Canada through the provision of services at certain XXXXXXXXXX facilities of the provincial XXXXXXXXXX authority.

While we understand from recent informal discussions (Duval/XXXXXXXXXX) that this matter is no longer under review by your office, you have asked for our written comments in this regard for future reference. We apologize for the delay.

Our Comments

Paragraph 1 of Article 14 of the Convention provides that income in respect of professional services of an independent character would be subject to Canadian income tax to the extent that it was attributable to a fixed base in Canada that was regularly available to the taxpayer for purposes of performing the services.

As outlined in our previous discussions, the commentary on Article 14 of the OECD Model Tax Convention suggests that there were no intended differences between the term "fixed base" for purposes of Article 14 and the term "permanent establishment" for purposes of Article 7, Business Profits. Further, we note that Article 5 of the Convention generally defines a permanent establishment as a "fixed place of business through which the business of an enterprise is wholly or partly carried on".

In considering the situation that you have presented, we note that the Canada Revenue Agency ("CRA") has provided its views on the significance of the decision of the Federal Court of Appeal in The Queen v. William A. Dudney (endnote 2) ("Dudney"), where, based on the particular facts of that situation, the premises of a taxpayer's client were not found to constitute a permanent establishment to the non-resident taxpayer.

In response to the Dudney decision, the CRA provided guidance on the determination of a permanent establishment through Income Tax Technical News No. 33, released on September 16, 2005. In that document, the CRA acknowledged that there are numerous factors to be considered in making a determination as to whether a permanent establishment exists, one of which is the legal right to exercise control over a place of business. Further, the CRA stated that:

"Which factors are most relevant in any particular case will be largely dependent on the nature of the taxpayer's business. Under a different set of facts, other factors could supersede those listed by the Judge in the Dudney decision."

In order to determine whether a permanent establishment existed in the situation that you have described, we considered the facts and supporting information that was provided to us. In light of the similarities to the situation in Dudney, we refer you to Income Tax Technical News No. 22, released on January 11, 2002, wherein the CRA stated that:

"We do not propose to litigate another case based on the taxpayer's use of space within the premises of another person unless we can reasonably maintain, based on the particular facts, that the taxpayer in fact had sufficient physical control of the space to carry on those aspects of his or her business that are appropriate to the space."

In the absence of facts that could otherwise be significantly distinguished from those considered in the Dudney case, we are unable to support a conclusion that a permanent establishment in Canada existed to the non-resident taxpayer in the case presented.

We trust that these comments, as well as our recent discussions, have been of assistance to you.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer.

Yours truly,

Robert A. Demeter, CPA, CGA
Manager
for Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

ENDNOTES

1 For further information on the determination of an individual's residence for Canadian income tax purposes, please refer to our Income Tax Folio S5-F1-C1, Determining an Individual's Residence Status.
2 2000 DTC 6169