29 December 2025 External T.I. 2025-1078091E5 - Application of GMTA to airline branch

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: A qualifying MNE group has a constituent entity resident in Jurisdiction A with a branch in Canada that operates aircraft in international traffic and is exempt from taxation in Canada under Article 8 of the tax treaty in force between Canada and Jurisdiction A. Is the qualifying MNE group liable to tax under the GMTA based solely on the operation in Canada of that branch, and is it obligated to file a GloBE Information Return ("GIR"), GIR notification, or Global Minimum Tax Return ("GMTR") (to report Parts 2 and 3 taxes payable) in accordance with the GMTA?

Position: Based on the limited facts provided, there is no liability to pay tax under Parts 2 and 3 of the GMTA, and there is no obligation to file a GIR, GIR notification, or GMTR in Canada in respect of the MNE group.

Reasons: There are no constituent entities in the qualifying MNE group that are located in Canada: the constituent entity resident in Jurisdiction A is located outside of Canada, and the branch operating in Canada is not treated as a "permanent establishment" for GMTA purposes.

XXXXXXXXXX								2025-107809
J. Fung, CPA, CA

December 29, 2025

Dear XXXXXXXXXX:

Re: Application of the Global Minimum Tax Act to a Canadian branch of a Jurisdiction A-resident entity operating aircraft in international traffic

This letter is in reply to your request dated September 9, 2025 regarding the application of the Global Minimum Tax Act (“GMTA”) to a Jurisdiction A-resident constituent entity (“CE”) of a multinational enterprise (“MNE”) group with a branch (a place of business) in Canada. As you have stated, the CE operates aircraft in international traffic and is exempt from taxation in Canada under Article 8 of the Canada-Jurisdiction A Tax Treaty. More specifically, you ask whether, based solely on the operation in Canada of a branch of a CE, a qualifying MNE group would be liable to tax under the GMTA. You also ask whether the MNE group would be obligated to file a GloBE Information Return (“GIR”), GIR notification, or Global Minimum Tax Return (“GMTR”) (to report Parts 2 and 3 taxes payable) in accordance with the GMTA.

This technical interpretation provides general comments about the provisions of the GMTA. It does not confirm the tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.

Unless otherwise stated, all statutory references herein are references to the GMTA.

Reference is also made to the model rules set out in the document entitled Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two) (the “GloBE Model Rules”) published by the Organisation for Economic Co-operation and Development (“OECD”) on December 20, 2021 and the commentary entitled Tax Challenges Arising from the Digitalisation of the Economy – Commentary to the Global Anti-Base Erosion Model Rules (Pillar Two), published by the OECD on March 14, 2022, as amended from time to time (the “GloBE Commentary”).

CRA Response

Given the limited facts that you have provided, it does not appear that a tax liability under Part 2 of the GMTA (the “income inclusion rule”) would arise under subsection 14(1) as there is no CE in Canada that has a direct or indirect ownership interest in another CE outside of Canada. Accordingly, we will assume, for the purposes of our comments, that your question relates exclusively to a potential tax liability under Part 3 of the GMTA (the “domestic minimum top-up tax”).

Liability for tax under Part 3 of the GMTA is established in subsection 51(1). That provision requires that, in order for a particular person to be subject to tax for a fiscal year in respect of a CE, the CE must be “located in Canada” (footnote 1) for the fiscal year.

The “location” of an entity for purposes of the GMTA is described in section 5. Subsection 5(1) applies to entities that are not “flow-through entities”. Based on the information that you have provided, it is our understanding that the CE that operates through a place of business in Canada is not a flow-through entity and is tax resident in Jurisdiction A based on its place of management or creation. As such, for GMTA purposes, that CE is located in Jurisdiction A.

However, subsection 5(3) of the GMTA provides additional rules for determining the location of permanent establishments, which will be dependent on the specific paragraph that is applicable in the definition of “permanent establishment” in subsection 2(1). Where it is determined that a permanent establishment exists under that definition, paragraph 11(1)(b) will apply to consider the permanent establishment as a separate CE. As such, although the “main entity” may be located in Jurisdiction A for GMTA purposes, it is still possible for the Canadian place of business to be considered as a separate CE that is located in Canada if it is determined that the place of business is a permanent establishment under the GMTA.

A permanent establishment exists for the purposes of the GMTA if any of paragraphs (a) to (d) of the definition are met:

“permanent establishment” means a place of business, including a deemed place of business,

(a) that is situated in a jurisdiction and treated as a permanent establishment in accordance with an applicable tax treaty in force, provided that the jurisdiction taxes the income attributable to it in accordance with a provision similar to Article 7 of the OECD Model Tax Convention;

(b) if there is no applicable tax treaty in force, in respect of which a jurisdiction taxes the income attributable to that place of business under its domestic law on a net basis similar to the manner in which it taxes its own tax residents;

(c) if a jurisdiction has no corporate income tax system, that is situated in that jurisdiction and that would be treated as a permanent establishment in accordance with the OECD Model Tax Convention, provided that the jurisdiction would have had the right to tax the income attributable to it in accordance with Article 7 of that model convention; or

(d) that is not already described in paragraphs (a) to (c) and through which operations are conducted outside the jurisdiction where the entity that would be the main entity, if the place of business were a permanent establishment, is located, provided that that jurisdiction exempts the income attributable to the operations conducted through the place of business.

Paragraph (a) of the definition will typically apply where a corporation resident in a country with which Canada has concluded a tax treaty (footnote 2) operates a business through a permanent establishment in Canada since such arrangements would typically fall within the scope of a provision that is similar to Article 7 of the OECD Model Tax Convention (footnote 3). Article 7 of the OECD Model Tax Convention allows the jurisdiction in which an entity operates a business through a permanent establishment, as defined in Article 5, to impose tax on the profits attributable to that permanent establishment. In cases where a tax treaty prevents a jurisdiction from imposing tax on profits attributable to a permanent establishment located in that jurisdiction, paragraph (a) of the definition of permanent establishment in the GMTA will not be applicable.

In the case of the entity that you have described, you have stated that Article 8 of the Canada-Jurisdiction A Tax Treaty applies to restrict Canada’s right to impose taxes on income derived from the Canadian place of business. As such, it cannot be said that Canada taxes the income attributable to the place of business in accordance with a provision similar to Article 7 of the OECD Model Tax Convention (footnote 4). The place of business is therefore not covered by paragraph (a) of the GMTA definition and the Jurisdiction A-resident entity is not considered to have a permanent establishment in Canada for the purposes of the GMTA under that rule despite the place of business potentially being considered as a permanent establishment for income tax purposes under the treaty. It is also our understanding, based on the limited facts provided, that the conditions in paragraphs (b) to (d) of the definition of “permanent establishment” are likewise not met with respect to the Canadian place of business (footnote 5). As such, the place of business will not be considered as a permanent establishment of the entity for GMTA purposes.

Because the place of business does not meet the definition of “permanent establishment” in subsection 2(1), it will not be deemed to be a separate CE under paragraph 11(1)(b), nor will subsection 5(3) apply. Accordingly, because there is no CE located in Canada under the GMTA, no Part 3 tax liability will result from the operation of the place of business in Canada by the Jurisdiction A-resident entity.

If an MNE group does not have CEs located in Canada, as determined under section 5 of the GMTA, none of the entities in the MNE group are required to file the GIR (60(1)), the GIR notification (60(4)), or the GMTR (61)(1) and (2)) in Canada.

We trust our comments will be of assistance.

Yours truly,

Charles Dumas
Section Chief
Specialty Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1. The requirement for the constituent entity to be located in Canada can be found in paragraph 51(1)(a).

2. “Tax treaty” is defined in subsection 2(1) of the GMTA.

3. “Model Tax Convention on Income and on Capital: Condensed Version 2017”, published by the OECD on December 18, 2017, as amended from time to time.

4. See comments in paragraph 101 in Chapter 10 of the GloBE Commentary, with respect to paragraph (a) of the definition of a “permanent establishment”.

5. With respect to paragraph (d), for purposes of our general comments, we have assumed that Jurisdiction A does not exempt the income attributable to the Canadian place of business. Were that not the case, the application of paragraph (d) of the definition would result in the permanent establishment being stateless as opposed to being located in Canada under paragraph 5(3)(d) and subsection 5(4).