30 August 1990 Ministerial Correspondence 900414 F - Canada-U.S. Income Tax Convention on Canadian Tax and Filing Obligations

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.

August 30, 1990

Dear Sirs:

Re:  Canadian Tax and Filing Obligations U.S. - Canada Tax Convention

This is in reply to your letter dated March 20, 1990 to the Non-Resident Taxation Division. 

Whether or not a non-resident is carrying on business in Canada or has a permanent establishment in Canada and the profits attributable to a permanent establishment are questions of fact that can only be determined based upon a full understanding of all relevant circumstances and generally only retrospectively after all such circumstances have been established. We are thus unable to express definitive opinions in response to your questions. However, we can make the following general observations which hopefully will be of assistance to you.

We are inclined to the view that USCo is carrying on business in Canada by virtue of the executive and management functions to be performed in Canada by the Canadian resident individual in his capacity as Vice President International ("VPI") of USCo and the other activities to be undertaken in Canada by personnel of USCo as described in your letter.  We are also inclined to the view that USCo has a permanent establishment in Canada, as defined in Article V of the Canada-United States Income Tax Convention, 1980 (the "Treaty") having regard to the office facilities of USCo's VPI in Canada.  In particular we note that the Commentary on the Model Double Taxation Convention on Income and Capital in the Report of the OECD Committee on Fiscal Affairs, 1977 is consistent with the view that USCo has a permanent establishment in Canada.

Based upon the information provided in your letter, it appears to us that Article VII(4) of the Treaty would not apply to prohibit the attribution of profits to USCo's permanent establishment as the use of the permanent establishment does not appear to be restricted only to the provision of the specified kind of services for USCo. For example, it appears that services are also being provided for other persons, namely, foreign subsidiaries of USCo.

As indicated above, we are not in a position to comment upon what portion of the profits of USCo would be attributed to its permanent establishment in Canada.  However, we note that the Department would have regard to subsection 69(3) of the Income Tax Act insofar as services provided to other foreign subsidiaries of USCo are concerned.

We do not agree that where a corporation has no income for purposes of the Income Tax Act section 150(1) does not require it to file a corporate tax return unless the Minister demands a return pursuant to subsection 150(2).  While a corporation that does not have and has never had any connection with Canada may not be subject to the requirement under subsection 150(1) to file a return, generally corporations and in particular all corporations resident in Canada and all non-resident corporations that carried on business in Canada, disposed of taxable Canadian property, had income of the kind referred to in section 115 of the Income Tax Act, or had a permanent establishment in Canada must comply with subsection 150(1).

Based upon the information provided in your letter, USCo would be required to file a corporate tax return under subsection 150(1).

Where a demand is made upon a person under subsection 150(2), the person must file a return of income for the taxation year designated in the demand, such return to be in the prescribed form and containing the prescribed information.

The information that USCo may be required to provide under the Income Tax Act is not limited to information related to the activities of any particular individual or individuals but generally would extend to all information relevant to the administration or enforcement of the Income Tax Act which may include activities that occur outside of Canada.

To obtain additional information, Revenue Canada, Taxation would have access to the information provisions of the Treaty.

The opinions expressed herein are not advance income tax rulings and, in accordance with paragraph 24 of Information Circular 70-6R dated December IS, 1978, are not considered binding on the Department.

Yours truly,

for Director Reorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch