7 July 1989 Ministerial Correspondence 57984 F - Permanent Establishment

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.

July 7, 1989

Dear Sirs:

Re:  Permanent Establishment

This is in reply to your letter of April 25, 1989 in which you asked for our views on a permanent establishment issue.  The situation you are concerned about is as follows:

1)     A client of yours is a Canadian incorporated company ("Canco") with manufacturing operations located in Canada.

2)     Canco is a 100% owned subsidiary of a Swedish Company.

3)     Canco has and habitually exercises an authority to conclude contracts in the name, and on behalf, of the Swedish parent.

You are of the opinion that Canco is a permanent establishment for its Swedish parent because it has and habitually exercises an authority to conclude contracts for its parent company.  Accordingly, you are of the view that interest payments from Canco to the Swedish parent would not be subject to Part XIII withholding taxes because of paragraph 6 of Article 11 of the Canada-Sweden Income Tax Convention.

We are of the view that generally a Canadian subsidiary of a foreign corporation does not operate as a permanent establishment in Canada of the foreign corporation.  It is a question of fact whether or not this is the case in the above fact situation.  In your situation we do not have enough facts to determine whether or not Canco would qualify as a permanent establishment of its Swedish parent.  Some of the additional facts that would be required to make this determination are:

1)     A copy of the agency agreement between Canco and the Swedish parent;

2)     details of how Canco operates in Canada;

3)     the reason for the loan from the Swedish parent to Canco; and

4)     whether the Swedish parent files Canadian tax returns and pays Canadian Part I tax.

As our district offices normally deal with questions of fact, such as the determination of the existence of a permanent establishment, we suggest you contact the London District Office for their views on this matter.

Yours truly,

K.B. Harding for Director Reorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch

c.c.     S. FishLondon District Office