Words and Phrases - "standby charge"

Art. V(4) of the Canada-U.S. Treaty provides that a permanent establishment exists in a Contracting State if the use of an installation or drilling rig or ship in that State to explore for or exploit natural resources is for more than three months in any twelve-month period. The Directorate stated:

[T]he three-month testing period could be non-consecutive, such that each use of an installation or drilling rig or ship would be aggregated in determining whether the three-month threshold is exceeded.

Regarding whether “three months” in Art. V(4) means three calendar months or days totaling an equivalent of three months, the Directorate distinguished the findings in Smith (96 DTC 3246) and McCombie (2000 DTC 3636) as to the meaning of “month,” and stated:

Considering that the testing period of three months is not required to be consecutive, the term “three months” should be considered to refer to the aggregate time measured by the number of months. Accordingly … “three months” generally means the aggregation of the number of days in three months.

Regarding whether “use” in Art. V(4) of the Canada-U.S. Treaty includes preparation time, it stated:

During preparation time, the installation or drilling rig or ship in question is in the process of getting ready to operate and is not yet capable of being utilized to explore for or exploit natural resources. Thus, preparation time generally would not be counted towards the three month testing period. …

Regarding standby time, i.e., “generally a temporary pause from operation that could be caused, for example, by severe weather, or shortage of labour,” it stated:

Such temporary interruption should not change the status that the installation or drilling rig or ship in question is being utilized in the business.