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: (1) Whether the Taxpayers would be considered carrying on business in Canada. (2) Whether the Taxpayers would be considered carrying on business in Canada through a permanent establishment, as defined under the relevant income tax conventions.
Position: (1) Yes; (2) No.
Reasons: Based on the facts, as submitted, the provision of Services to non-resident clients by the Assigned Employees from their rental homes in Canada will cause the non-resident employers to be carrying on business in Canada, but will not cause the employers to be considered to be carrying on business in Canada through a permanent establishment.
XXXXXXXXXX 2023-098428
XXXXXXXXXX, 2024
Dear XXXXXXXXXX,
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in response to your XXXXXXXXXX request for an advance income tax ruling on behalf of the above-noted Taxpayers, as amended and updated with additional facts on XXXXXXXXXX (the “Ruling Request”). We also acknowledge the additional information provided to us in your emails in connection with your request, the last of which was dated XXXXXXXXXX.
The Taxpayers are non-residents of Canada and have never filed any Canadian tax returns.
We understand that to the best of your knowledge and that of the Taxpayers, none of the Transactions or issues involved in this letter are the same as or substantially similar to transactions or issues that are:
i. in a previously filed tax return of the Taxpayers or a related person and:
A. being considered by the CRA in connection with such return;
B. under objection by the Taxpayers or a related person;
C. the subject of a current or completed court process involving the Taxpayers or a related person; or
ii. the subject of a ruling request previously considered by the Income Tax Rulings Directorate in relation to the Taxpayers or a related person.
Unless otherwise noted, all references herein to sections or components thereof are references to the Income Tax Act (Canada), R.S.C. 1985, c. 1 (5th Supp.), as amended (the “Act”), or, where appropriate, the Income Tax Regulations, C.R.C., c.945, as amended (the “Regulations”). All terms used herein that are defined in the Act or in the Regulations have the meaning given in such definition.
The rulings given herein (the “Rulings”) are based solely on the facts, transactions, purposes of the transactions and additional information described below. Facts and transactions described in the Ruling Request and in any documents and correspondence submitted with or subsequent to your Ruling Request do not form part of the facts and transactions on which the Rulings are based, except to the extent they are reproduced herein. The singular should be read as plural and vice versa where the circumstances so require.
Definitions
In this letter the following terms and abbreviations have the meanings specified:
“Assigned Employee” means an employee of one of the Taxpayers who accepts the offer to temporarily relocate to the Province and provides Services from there;
“Canada Treaty with Country A” means the Convention between Canada and XXXXXXXXXX;
“Canada Treaty with Country B” means the Agreement Between Canada and XXXXXXXXXX;
“Canada Treaty with Country C” means the Convention Between Canada and XXXXXXXXXX;
“Client” means the patient who receives Services from the Taxpayers;
“Country A” means XXXXXXXXXX;
“Country B” means XXXXXXXXXX;
“Country C” means XXXXXXXXXX;
“CRA” means the Canada Revenue Agency;
“Paragraph” means a numbered paragraph in this letter;
“Province” means the Province of XXXXXXXXXX, Canada;
“Service” means XXXXXXXXXX provided via telephone, video, and chat;
“Taxpayer A” means XXXXXXXXXX, a corporation formed pursuant to the laws of Country A;
“Taxpayer B” means XXXXXXXXXX, a corporation formed pursuant to the laws of Country B;
“Taxpayer C” means XXXXXXXXXX, a corporation formed pursuant to the laws of Country C;
“Taxpayers” collectively refers to Taxpayer A, Taxpayer B and Taxpayer C; and
“Transactions” means the transactions described in the Transactions section of this letter.
Our understanding of the facts, transactions and purpose of the transactions is as follows:
Facts
1. Taxpayer A is not a person resident in Canada for the purposes of the Act and is a person resident in Country A for the purposes of the Canada Treaty with Country A.
2. Taxpayer B is not a person resident in Canada for the purposes of the Act and is a person resident in Country B for the purposes of the Canada Treaty with Country B.
3. Taxpayer C is not a person resident in Canada for the purposes of the Act and is a person resident in Country C for the purposes of the Canada Treaty with Country C.
4. The Taxpayers carry on the business of providing Services.
5. Services are available to Clients at all times during the day and night. Accordingly, the Taxpayers require certain employees to work night shifts.
6. The Taxpayers currently do not have any Clients in Canada nor do they intend to pursue Clients in Canada. All of the Taxpayers’ Clients are within the XXXXXXXXXX time zone.
7. Prior to submitting the Ruling Request, the Taxpayers did not have employees in Canada and did not have a permanent establishment in Canada. However, certain employees of the Taxpayers have subsequently begun working in Canada as described in the Transactions below.
8. The Taxpayers’ servers are located outside of Canada.
Transactions
9. Some of the transactions described in the following Paragraphs took place after the Ruling Request had been first submitted but prior to the date of this letter.
10. The Taxpayers offer certain employees to temporarily work remotely in the Province to provide Services during what would correspond to night shifts in the XXXXXXXXXX time zone.
11. The first Assigned Employee worked in the Province from XXXXXXXXXX.
12. On a going forward basis, the maximum of the Assigned Employees working from the Province at any time will be two.
13. The relocation to the Province is on a voluntary basis and the employees are able to choose to cover XXXXXXXXXX time zone night shifts from their home country instead.
14. The Assigned Employees perform the exact same Services as the employees that choose to remain in and work from their home country.
15. The Assigned Employees are and will be residents of Country A, B or C for tax purposes.
16. Each Assigned Employee stays in Canada no more than 183 days in a particular year.
17. The Assigned Employees are responsible for renting their own accommodation, and can choose a location anywhere within the Province. The Taxpayers did not and will not own or rent any premises in Canada.
18. The Assigned Employees are responsible for maintaining a workspace suitable for the performance of Services in the rented premises and provide Services from there. The Taxpayers have not had and will not have control over or access to these workspaces and have not assumed and will not assume any costs or risks associated with these workspaces. None of the employees of the Taxpayers, other than the Assigned Employee that rents the premises, have had or will have access to these workspaces.
19. The Assigned Employees are entitled to a living allowance as part of the offer to temporarily relocate to work remotely in the Province. The living allowance is in the form of a fixed monthly payment for the duration of the stay in Canada and is not based on the amount of rent paid by the Assigned Employee or on any other home office expenses. The purpose of the living allowance is to compensate the Assigned Employees for any travel expenses they may have abroad. The amount is currently XXXXXXXXXX per month and is determined based on the maximum amount that is allowed in XXXXXXXXXX as a tax-free and social security-free travel expense.
20. Premises rented in the Province will not be shared among the Assigned Employees on a rotational basis. As such, the accommodations and workspaces rented by the Assigned Employees will be short-term rentals.
21. The Assigned Employees do not regularly return to their offices in their home countries, although they do not lose access to their regular offices in their home countries while working in Canada.
22. The Taxpayers provide the Assigned Employees with a laptop, two external monitors, a keyboard, a mouse, and a mobile internet hub from XXXXXXXXXX for use in the Province. The Assigned Employees also use the Taxpayers’ servers and no data related to the Clients, Services, or any other aspect of the business is or will be stored on servers, drives or other systems physically located in Canada.
23. The Taxpayers expect to have the Assigned Employees in the Province on a recurring basis to facilitate the provision of Services during night shifts. If this does not occur, Services provided from Canada may be paused and replaced by night shifts in XXXXXXXXXX or by similar arrangements from another country. Due to the nature and flexibility of their work arrangements and employee personal preferences, there is uncertainty about the number of employees accepting the offer to work in the Province at any given period of time.
Purpose of the Transactions
24. The purpose of the Transactions is to accommodate the Assigned Employees’ preferences of working during day time while being able to provide Services to Clients during what would correspond to night shifts in the XXXXXXXXXX time zone.
Additional Representations
25. None of the Clients serviced by the Assigned Employees are or will be located in Canada.
26. The Assigned Employees do not and will not solicit clients in Canada.
27. The Assigned Employees do not and will not sign nor have the authority to conclude contracts in Canada on behalf of the Taxpayers.
28. None of the Taxpayers’ clients, Clients, vendors and suppliers have been or will be notified of the Assigned Employees’ presence in Canada. The Taxpayers have not indicated and will not indicate the address of any of the premises rented by the Assigned Employees in the Province in any of their correspondence, and have not represented and will not represent to third parties that these premises rented by the Assigned Employees are their places of business in Canada.
29. All of the Assigned Employees are individuals employed by the Taxpayers and their remuneration is in the form of wages or salary. None of the Assigned Employees are independent contractors.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, transactions, purpose of the transactions, and additional information, and provided that there are no other transactions that may be relevant to the Rulings given below, we rule as follows:
A. The Taxpayers will be considered to be carrying on business in Canada in their respective taxation years during which their Assigned Employees are providing Services from the Province.
B. Taxpayer A will not be considered to be carrying on business in Canada through a permanent establishment, as defined in Article 5 of the Canada Treaty with Country A, solely as a consequence of Services provided by the Assigned Employees from the Province as described in the Transactions.
C. Taxpayer B will not be considered to be carrying on business in Canada through a permanent establishment, as defined in Article 5 of the Canada Treaty with Country B, solely as a consequence of Services provided by the Assigned Employees from the Province as described in the Transactions.
D. Taxpayer C will not be considered to be carrying on business in Canada through a permanent establishment, as defined in Article V of the Canada Treaty with Country C, solely as a consequence of Services provided by the Assigned Employees from the Province as described in the Transactions.
The above Rulings are binding on the CRA in respect of Services provided by the Assigned Employees from the Province as described in the Transactions during a period of 12 months from the date of this letter. For greater certainty, the Rulings are also binding on the CRA in respect of Services provided by the Assigned Employees from the Province prior to the issuance of this letter, but after the submission of the Ruling Request, as described in the Transactions.
These Rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R12 dated April 1, 2022. The Rulings are based on the current provisions of the Act, the Regulations, the relevant tax treaties and the OECD’s commentaries on the articles of the Model Tax Convention on Income and on Capital (the “OECD Commentaries”) as they read as of the date of this letter. Any amendments of the relevant legislation or changes to the OECD Commentaries could have an effect on the Rulings provided herein.
Except as expressly stated, these Rulings do not imply acceptance, approval or confirmation of any other income tax implications of the facts and transactions described herein other than those specifically described in the Rulings given above. For greater certainty, nothing in this letter should be construed as implying that the CRA has agreed to or reviewed the following:
i. any issues concerning the residency of the Taxpayers and their eligibility for the benefits of the relevant income tax convention;
ii. any issues concerning whether the Taxpayers have a permanent establishment in Canada for reasons other than the activities of the Assigned Employees performed in Canada as described in the Transactions;
iii. any issues concerning Canadian income tax with respect to the Assigned Employees, including the residency of the Assigned Employees for income tax purposes;
iv. any issues concerning withholding requirements pursuant to subsection 153(1) of the Act and section 102 of the Regulations, or the making of an information return pursuant to subsection 153(1) and section 200 of the Regulations, related to the remuneration of the Assigned Employees;
v. any tax compliance matters or withholding requirements pursuant to subsection 153(1) of the Act and section 105 of the Regulations related to the activities of the Taxpayers, including those in connection with the Transactions.
An invoice for our fee will follow under separate cover.
Yours truly,
XXXXXXXXXX
Section Manager for Division Director
International Division
Income Tax Rulings Directorate
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