27 July 1994 External T.I. 9409325 - PERMANENT ESTABLISHMENT

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

DOES A US CORP HAVE A PERMANENT ESTABLISHMENT IN CANADA WHEN SPECIALIZED EMPLOYEES OF A SISTER CANADIAN CORP DO WORK FOR THE US CORP IN CANADA.

Position TAKEN:

IT IS A QUESTION OF FACT, WOULD HAVE TO LOOK AT THE DETAILS OF THE CONTRACTS

Reasons FOR POSITION TAKEN:

THE REOLUTION TO THE QUESTION IS A FACTUAL DETERMINATION WHICH CAN NOT BE MADE UNTIL AFTER THE CONTRACTS HAVE BEEN EXECUTED.

	   		940932
XXXXXXXXXX	   A. Seidel

Attention: XXXXXXXXXX

July 27, 1994

Dear Sirs:

This is in reply to your letter dated April 7, 1994 requesting our views with respect to the meaning of "permanent establishment" in Article V of the Canada-United States Income Tax Convention, 1980 (the "Treaty").

Pursuant to Article V of the Treaty, the term "permanent establishment" means a fixed place of business through which the business of a resident of the contracting state is wholly or partly carried on and includes an office and a workshop. Paragraph 4 of Article V of the 1992 OECD commentary states that a fixed place of business includes the use of space which is situated in the business facilities of another enterprise.

The determination of whether a permanent establishment exists in a contracting state is a question of fact which can only be determined by reviewing all of the relevant information in any particular case.

In the situation where a corporation has wholly-owned subsidiaries in Canada and the United States ("U.S.") with "specialized employees" employed by the Canadian subsidiary which are required to visit work sites in the U.S. to review projects, gather data, and carry out certain tests and then return to their office in Canada to interpret lab reports, design solutions to problems, conduct discussions with regulatory and environmental agencies of the U.S. and finally prepare engineering reports, we believe that such employees may be carrying on the business of the U.S. subsidiary in Canada at a fixed place of business, that being the offices of the Canadian subsidiary and therefore the U.S. subsidiary may have a permanent establishment in Canada. The proposal to add these employees to the payroll of the U.S. subsidiary so that they may receive bonuses based on their contributions to the overall profitability of the U.S. subsidiary is further evidence that these employees might be considered to be carrying on the business of the U.S. subsidiary at a fixed place of business in Canada.

These comments are provided in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch