23 October 1991 Ruling 912573 F - Permanent Establishment of a Corporation

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.

Dear Sirs:

Re:  Section 409 and 402 of the Income Tax Regulation (the "Regulations")

This is in reply to your letter of August 13, 1991, addressed to the Toronto District Office and further to a telephone conversation    19(1)     Tremblay of October 10, 1991, concerning the application of 409  and 402 of the Regulations in the following hypothetical fact situation.  The facts given are as follows:

1.                  24(1)

2.

It is your view that section 409 of the Regulations should not apply as the corporation does not on or lease any vehicles used to transport the goods.  In your opinion, section 402 of the Regulations should be used to allocate the income, and you ask whether or not the amounts paid to the brokers are used in the allocation of taxable income.

Our Comments

Since your letter appears to refer to a factual situation involving a specific taxpayer, your questions should be directed to your District Taxation Office which has the responsibility of determining the tax consequences of completed transactions and their implications to the specific taxpayers.  However, we are prepared to offer the following general comments.

We assume that in the use of the word "broker" you mean the services of an independant trucker (owner operator) picking up goods at a central location and transporting these goods to its final destination.

We agree that the wording in section 409 of the Regulations requires the corporation to own or lease the vehicles used to transport the goods in order for that section to apply. Accordingly, the corporation would not compute its allocation of income among the provinces using section 409 of the Regulations; rather, it would be subject to the general rules found in section 402 of the Regulations.

In our view, to determine if a corporation has a permanent establishment in a province, it is necessary to see if the corporation meets any of the criteria in section 400 of the Regulations.  A corporation that uses substantial machinery or equipment in a particular place in a province will be deemed to have a permanent establishment in that province.  The corporation need not own the machinery or equipment that it uses to be subject to the provision of paragraph 400(2)(e) of the Regulations.

In our opinion, subsection 402(7) of the Regulations provides a requirement to include the fees paid to the brokers in the allocation of income.

The forgoing represents our general views with respect to the subject matter of your letter, however, the facts of a particular situation may result in a different conclusion.  As indicated, these opinions are not rulings and in accordance with the guidelines set forth in Information Circular 70-6R2 they are not binding on the Department.

We trust our comments will be of assistance to you

Yours truly

E. Wheeler for DirectorBusiness & General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch