CRA finds that remotely servicing a Canadian customer did not give rise to a services PE in Canada

Canco licensed software of a US affiliate (USco), which it used to provide data analytics services to its Canadian customers. The software and Canadian customer data were kept on Canadian servers. USco personnel, physically situate at all times in the US, accessed the servers in order to maintain and (as required) upgrade the software and provide related quality-control services. Could part of the services rendered by USco be considered “services… provided in that other State" for purposes of Art. V:9(b) of the Canada-U.S. Tax Treaty?

CRA noted that the 2008 US Treasury Department Technical Notes included a comment on Art. V:9(b) that “[w]here, for example, an enterprise provides customer support or other services by telephone or computer to customers located in the other State [Canada], those would not be covered by paragraph 9 because they are not performed or provided by that enterprise within the other State.” On this basis, it appeared that USco would not have a sufficient presence in Canada to engage Art. V:9(b).

Although the speaker moved back from the microphone at a key moment, CRA appeared to also consider that payments made by Canco to USco would not be subject to Reg. 105 withholding due to the remote and accessory nature of USco’s services.

Neal Armstrong. Summaries of 29 November 2022 CTF Roundtable, Q.4 under Reg. 105(1) and Treaties – Income Tax Conventions – Art. 5.