2 November 1990 External T.I. 902530 F - Canada-U.K. 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.

19(1)

November 2, 1990

Dear Sirs:

Re:  Canada-United Kingdom Income Tax Convention (the "Convention")

This is in reply to your letter dated September 14, 1990 thereby you asked the following questions concerning paragraph 3 of Article 5 of the Convention:

1.     Is the paragraph interpreted so that the term "permanent establishment" shall not be deemed to include the use of facilities solely for more than one of the purposes listed in subparagraphs (a) through (e)? In bother words, if a facility is used for both the purposes mentioned in subparagraphs (a) and (c) does paragraph 3 apply to deem that these facilities shall not be included as a permanent establishment?

2.     What is the difference in meaning between subparagraph 3(a) and subparagraph 3(b)?

3.     Does the Department agree that the introductory phrase of paragraph 3 means the same as if it read "The term permanent establishment" shall be deemed not to include"?

Our Comments

1.     Paragraph 3 of Article 5 of the Convention must be interpreted by giving meaning to the words used therein. Accordingly, subparagraph (a) of paragraph 3 will only apply to facilities used solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise. However, your questions indicate that you are overlooking the fact that only subparagraph (a) uses the term "use of facilities". Subparagraph (a) provides that the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise will not in and of itself constitute a permanent establishment whereas subparagraph (c) provides that the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise will not in and of itself constitute a permanent establishment. It is possible that an enterprise could be using facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise and the goods or merchandise could be being maintained by the enterprise solely for the purpose of processing by another enterprise in which case by virtue of subparagraphs (a) and (c) of paragraph 3 neither the use of such facilities nor such goods or merchandise will in and of themselves constitute a permanent establishment.

2.     Subparagraph (a) refers to and applies in respect of "facilities" whereas subparagraphs (b) and (c) refer to and apply in respect of "a stock of goods or merchandise". In other words, subparagraph (a) provides that certain facilities shall not constitute a permanent establishment whereas subparagraphs (b) and (c) respectively provide that certain goods, in and of themselves, shall not constitute a permanent establishment.

3.     In our opinion, the phrase "shall not be deemed to include" in the introduction of paragraph 3 of Article 5 of the Convention is synonymous with "shall be deemed not to include".

The opinions expressed herein are not advance income tax rulings and, in accordance with paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, are not considered, binding on the Department.

Yours truly,

for DirectorReorganization and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch