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: Is a ship operating in Canadian territorial waters a permanent establishment?
Position: A ship will constitute a permanent establishment if it is linked to a specific geographic location or if it operates in a limited area for an extended period of time.
Reasons: Where the above-noted conditions are satisfied, a ship will be a fixed place of business and, as such, a permanent establishment
XXXXXXXXXX 982693
D. Boychuk
Attention: XXXXXXXXXX
November 30, 1999
Dear Sirs:
Re: Tax Convention Between Canada and Norway - Permanent Establishment
We are writing in response to your letter of October 7, 1998 wherein you requested our views on whether a ship would constitute a "permanent establishment" within the meaning of the Canada - Norway Income Tax Convention (the "Convention") in the circumstances described below.
1. A Norwegian corporation ("Nco") owns a ship (the "Ship") outfitted for the purpose of undertaking underwater seismic surveys. Nco intends to enter into a time charter agreement with an unrelated Canadian corporation for performing seismic surveys predominantly in Canadian territorial waters.
2. Nco is not resident in Canada for purposes of the Income Tax Act (the "Act") or the Convention.
3. The Nco will not be involved in doing any seismic surveys. Its activities will be restricted to providing the Ship and personnel capable of operating the Ship.
4. Nco will not collect any samples and will not be involved in the transportation of goods.
5. The Ship may be registered by Nco under a Canadian flag.
6. Under the terms of the time charter agreement, the Ship will operate in Canadian territorial waters for approximately three years.
7. Nco does not otherwise carry on business at a permanent establishment located in Canada.
You have asked whether we would consider that Nco has a permanent establishment in Canada for purposes of the Convention. You have expressed the view that the Ship should not constitute a permanent establishment, based on the fact that it is not treated as immovable property for purposes of the Convention and that the definition of permanent establishment in the Convention does not include the use of substantial equipment.
A determination of whether Nco has a permanent establishment in Canada can only be made after a complete review of all the relevant facts, including the geographical scope of the Ship's operations, the duration of its operations, whether the Ship is anchored at any time in a particular place as well as the number and length of Nco's contracts in respect of the Ship's activities in Canadian territorial waters. We are, however, able to provide the following general comments.
The Convention defines a permanent establishment as "a fixed place of business in which the business of the enterprise is wholly or partly carried on." In general, a ship will constitute a fixed place of business under the Convention if it is linked to a specific geographical location (i.e. by virtue of being anchored in a particular place) or if the ship operates in a geographically limited area for an extended period of time. Should a ship operating in Canadian territorial waters satisfy either of these conditions, we would generally take the position that it constitutes a permanent establishment within the meaning of the Convention.
We trust that our comments will be of assistance.
The above comments represent our general views with respect to the subject matter of your letter and are provided in accordance with paragraph 22 of Information Circular 70-6R3.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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