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.
Principales Questions: Will the CRA extend the administrative relief provided in respect of corporate residency and permanent establishment beyond September 2020?
Position Adoptée: No. Determinations of corporate residency and permanent establishment will be made on a case by case basis post September 2020.
Raisons: See Supplemental Guidance on International Tax Issues published by the CRA on April 1, 2021.
2021 International Fiscal Association Conference
CRA Roundtable
Question 1 – COVID 19 and CRA Guidance Post September 2020
In January 2021, the Organisation for Economic Co-Operation and Development (“OECD”) came out with detailed guidance on interpreting tax treaties in light of COVID-19, (particularly with respect to determining “residency” and “permanent establishment” under tax treaties). Will the Canada Revenue Agency (“CRA”) confirm that they agree with the OECD’s guidance? While the CRA has indicated that they will be providing new guidance focused on individuals, will the CRA also extend its guidance for corporations that expired in September 2020 – given that the pandemic has not yet been resolved and the global travel restrictions remain in place?
CRA Response
On April 1, 2021, the CRA published Supplemental Guidance on International Tax Issues resulting from the pandemic. This update provides guidance and relief with respect to permanent establishment determinations, cross-border employees and individual residency.
The administrative relief provided for the initial relief period (March 16, 2020, to September 30, 2020) is no longer applicable to permanent establishment determinations of non-resident employers. However, the CRA expects that the application of the relevant treaty provisions to their situation will generally not result in the finding of a permanent establishment in Canada in situations where their employees work remotely from their home or short term residence in Canada solely because of COVID-19 travel restrictions. This type of situation will generally not be sufficient to meet the thresholds of a permanent establishment. For more details, see https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/guidance-international-income-tax-issues.html#h_vii).
Furthermore, the CRA did not extend the administrative relief for corporate residency beyond September 30, 2020. Residency determinations and questions surrounding central management and control must be addressed on a factual case-by-case basis.
Should residency and permanent establishment issues arise in future audits, the CRA will give due consideration to the impact of COVID-19 travel restrictions in its overall evaluation of facts.
Angelina Argento/Marie Claude Routhier
2021-088762
May 5, 2021
Response prepared in collaboration with:
Michael Jennings, Director International Tax Division
International, Large Business and Investigations Branch
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