30 August 2011 External T.I. 2011-0402471E5 - Article V(9)(a), VII(1)

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 taxpayer's time spent providing services in Canada on two separate periods would both be counted in establishing whether there was a deemed permanent establishment ("PE") in Canada.

Position: Depends on the facts of the case

Reasons: One of the two periods is not within a 12 month-period, thus it will not be considered when applied to the 183-day test per Article V(9)(a) of the Canada-US Tax Convention.

XXXXXXXXXX 								2011-040247
									J. Nichols
August 30, 2011

Dear XXXXXXXXXX :

RE: Canada-U.S. Tax Convention Article V(9)(a)

We are replying to your letter dated March 30, 2011 regarding paragraph 9(a) of Article V of the Canada-U.S Tax Convention ("Convention"). You present the following hypothetical facts:

1. A U.S. resident individual (the "Taxpayer") worked as a self-employed person providing services in Canada for all of January 2010 ("Period 1"). The Taxpayer was present in Canada on each day in the period.

2. The Taxpayer left Canada on January 31, 2010 and did not return to Canada until October 1, 2010.

3. The Taxpayer again worked as a self-employed person providing services in Canada from October 1, 2010 through April 30, 2011 ("Period 2"), and was present in Canada on each day in the period.

4. The Taxpayer left Canada permanently after April 30, 2011.

5. The Taxpayer had no income from any other source, anywhere in the world during 2010 and 2011.

6. Absent paragraph 9 of Article V of the Convention, the income from services provided by the Taxpayer are not earned through a permanent establishment in Canada.

You observe that the services performed in Period 1 are not performed in any period or periods aggregating 183 days or more during which the Taxpayer is present in Canada. However you note that the services performed in Period 2 meet all the requisites of paragraph 9(a) of Article V of the Convention. Therefore, the services provided during Period 2 will be deemed to be provided through a PE of the Taxpayer in Canada. You request our view whether the services performed during Period 1 will also be deemed performed in Canada through a PE as a consequence of the Taxpayer's presence in Canada during Period 2. You are concerned that the income from Period 1 could be attributed to the PE through which the services in Period 2 are performed.

Our Comments

In our view the services performed during Period 1 are not deemed by paragraph 9(a) of Article V of the Convention to have been provided through a PE of the Taxpayer in Canada. While paragraph 9(a) of Article V does deem the services provided by the Taxpayer during Period 2 to have been provided through a PE in Canada, it does not deem a PE to exist in Canada to which income from services provided at another time could be attributed. Furthermore, it is our view that in applying the tests therein each reference to "services" in paragraph 9 of Article V of the Convention, is a reference to services that are rendered during the "period or periods" being tested. As a result, only services that are rendered during a period or periods that meet the 183 day threshold in 9(a) of Article V can be deemed by the provision to be earned through a PE in Canada. In the above scenario as Period 1 does not meet the threshold, the services provided during that period are not deemed to have been provided through a PE.

In sum, it is our view that in your hypothetical scenario paragraph 9(a) of Article V does not deem the services provided during Period 1 to have been provided through a PE that the Taxpayer has in Canada. Moreover, the income from services rendered in Period 1 cannot be attributed to the PE through which the services in Period 2 are deemed to have been provided.

We trust our comments will be of assistance.

Yours truly,

Olli Laurikainen
Manager
International Section II
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch