2 March 1988 Income Tax Severed Letter 7-2404 - []

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.

DATE March 2, 1988

TO International Audit Division

Mr. J.A. Calderwood Director

Specialty Rulings Directorate K.B. Harding (613) 957-2129 SUBJECT: XXXX

This is in reply to your memorandum of December 14, 1987 wherein you requested our opinion whether XXXX has a permanent establishment in Canada. You have specifically requested our opinion on the following questions and we will respond in the order presented.

(1) If XXXX did not operate through a personal services corporation, but rather performed the camera work in Canada personally and the facts were the same as outlined above (except for the absence of the corporation), would he have a fixed base in Canada under Article XIV of the Convention?

(2) Does XXXX personal services corporation have a permanent establishment Canada under Article V of the Canada-U.K. Tax Convention (Convention)?

(3) As Articles V and XIV of the Canada-U.S. Income Tax Convention (U.S. Treaty) are substantially similar to Article V and XIV of the Convention would your replies to Opinion #1 and #2 above be the same if XXXX and his Corporation were U.S. residents? We will respond to the questions in the order presented.

A. Paragraph 1 of Article XIV of the Convention indicates that income derived by a resident of the U.K. in respect of independent activities shall be taxable only in the U.K. unless the taxpayer has a fixed base regularly available to him in Canada for purposes of performing his activities. If he has such a fixed base, the income may be taxed in Canada but only so much of it as is attributable to that fixed base.

The commentary to the "Model Double Taxation Convention" clearly indicates that "(a) person performing independent personal services would probably not as a rule have premises of this kind in any other state than of his residence". The reference to the word "premises" relates to "a physician's consulting room or the offices of an architect or a lawyer". In view of this statement and arguments set out below, it is our opinion that it would be difficult to argue that XXXX had a fixed base in Canada in the circumstances set out above.

It is our view that the words "fixed base" is synonymous with the term "permanent establishment" which contemplates carrying on business at a fixed geographical position and such place of business must have a degree of permanency rather than one of a purely temporary nature. In addition, for purposes of the Convention and other tax treaties, Canada may only tax the income that is attributable to that fixed base.

XXXX

We are enclosing a copy of a memorandum dated October 10, 1986 where we attempted to outline some general guidelines on this topic.

B. It is our view that the question of whether or not XXXX personal corporation has a permanent establishment or not is no different than determining whether XXXX has a fixed base if he did not operate through a personal corporation. Since the term "fixed base" is synonymous with the term "permanent establishment" it would appear that our response should be the same whether XXXX carries out his activities personally or through a personal corporation.

C. Since the words of Articles V and XIV of the Convention are substantially similar to the related articles in the U.S. Treaty we are of the view that the result should not change as a result of switching the identical facts from the Convention to the U.S. Treaty.

In informal discussions with the writer and Mr. Waszut it was indicated that the word "recurring", as used in the Administrative Policy on Non- Resident Withholding Taxes dated November 5, 1986, was causing a problem. It was our understanding that if the individual made a second visit to Canada that this was of a recurring nature and the purpose was to bring the matter to the attention of the District Taxation Office to review the case and determine whether or not a permanent establishment existed. Where the individual was in Canada less than 60 days duration on his first visit he would automatically be considered not to have a fixed base.

for Director Reorganizations and. Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch

c.c. John Oatway Source Deductions