26 January 1990 Internal T.I. 59189 F - Permanent Establishment - Canada-U.S. Income Tax Convention

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.

January 26, 1990

19(1)

This is in reply to your letter of November 3, 1989 wherein you requested an opinion whether 24(1)  was required to file a tax return in Canada.

It is our understanding 24(1)

It is our view that  24(1)  would be carrying on business in Canada and would therefore be subject to tax in Canada by virtue of subsection 2(3) of the Income Tax Act (the "Act").  However, Article VII of the Canada-U.S. Income Tax Convention (1980) (the "Convention") limits Canada's tight to tax a U.S. company to those situations where the company carries on business in Canada through a permanent establishment.

Article V of the Convention defines a "permanent establishment" as a fixed place of business in Canada through which the business of a resident of the United States is wholly or partly carried on.  Paragraph 2 of that Article states that the term "permanent establishment" shall include especially an office.  While it remains a question of fact it is our view, based on the limited information provided. 24(1) In addition, such a  24(1) We are enclosing a copy of Interpretation Bulletins IT-137R2 and IT-277R which deals with the calculation of the Branch Tax and the effect of tax treaties on that tax.

We are enclosing a copy of the Convention and a T2 Corporation Income tax Guide for your perusal.  You will note that pages 68 and 69 provide a partial listing of Interpretation Bulletins and Information Circular which may be helpful in preparing tax returns.  In addition, the enclosed Information Circular 87-2 will have some importance when filing the T2 Return since it discusses transfer pricing methods and consideration.

We trust these comments are useful for your purposes and we would be prepared to review our position if you wish to make a representation in this matter.

Yours truly,

for DirectorReorganization and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch