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.
Memo to File
File: 990466
Date: June 29, 1999
Simon Leung
Subject: Permanent Establishment - Same or Similar activities
Jan Tollovsen of Vancouver TSO inquired whether the expression "same or similar activities" used in paragraph 2 of Article VII of the Canada-United States Income Tax Convention refers to the branch or to the company as a whole.
It is our view that that expression refers to the activities of the permanent establishment, not the company. Support to this interpretation can be found in the commentary on Article 7 of the OECD Model Convention by Klaus Vogel in his book "Klaus Vogel on Double Taxation Convention". The object of the exercise is to determine profit out of the activities in Canada.
With respect to the royalty income earned by the branch for the use of or the right to use or sub-license the computer software developed by head office of the U.S. company, it is our view that the income (i.e., gross royalty income) is sourced to the country where the intangible property is exploited and there is allowed an allocation of costs to Canada (i.e., costs to obtain the royalty rights by the U.S. company). In this regard, please refer to paragraph 17.4 of the Commentary on Article 7 of the OECD Model Convention. In other words, there should not be included any profit element in the head office charge to the branch for the use of or the right to use or sub-license the software by the branch.
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© Her Majesty the Queen in Right of Canada, 1999
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