Most tax conventions into which Canada
has entered are based on the OECD model,
but for the purposes of this discussion, let’s
focus on the Canada-US convention (“the
Treaty”).9
Fixed place of business
The Treaty defines a PE to include a fixed
place of business through which the business is wholly or partly carried on10; it includes: a place of management; a branch; an
office; a factory; a workshop; and a mine, an
oil or gas well, a quarry, or any other place of
extraction of natural resources.11
The Treaty further expands the definition
of a PE to include any building, construction
site, or installation project that lasts longer
than 12 months12; similarly, the Treaty expands
the definition to include any installation,
drilling rig, or ship in the exploitation of
natural resources that is in use for more than
three months during a 12-month period.13
Services
The Treaty includes provisions to capture the growing services sector.15 A services PE is deemed
to exist if a non-resident person/company provides services in Canada in certain circumstances.
Even if there is no fixed place of business, a services PE could still be created if:
• Services are provided for more than 183 days by an individual in any 12-month period, and
more than 50% of the gross active business revenue earned by the non-resident during that
period consists of income derived from services performed in Canada16; or
• Services are provided for 183 days or more and relate to the same or connected projects for
customers in Canada.17
Preparatory or auxiliary services
The Treaty exempts certain activities of a preparatory or auxiliary nature from constituting a
PE, even if they are being carried on through a fixed place of business. These activities could
include the storage or display of goods, the maintenance of inventory for the processing or collection of information, and other activities of a preparatory or auxiliary nature (such as advertising,
the supply of information, and scientific research).18
rticle V(9) of the Treaty was introduced in 2010 for an enterprise in a contracting state that
A
15
provides services but does not have a PE by virtue on any other paragraph.
Article V(9)(a) of the Treaty.
16
Article V(9)(b) of the Treaty.
17
Article V(6) of the Treaty.
18
Dependent agent
The Treaty includes a provision that will
cause a PE in Canada if a dependent agent in
Canada has and habitually exercises in Canada the authority to conclude on contracts.14
Under this provision, a non-resident does
not have to have a fixed place of business to
have a PE in Canada. Note, however, that the
provision will not apply if the agent is both
legally and economically independent.
Business Valuation
Litigation Support
Mergers & Acquisitions
Independence.
Integrity. Experience.
he Treaty refers to the “Convention
T
9
between the Government of the United
VancouVer
604.678.6411
Kelowna
250.448.7450
States of America and the Government of
Canada with Respect to Taxes on Income
and on Capital,” which was signed
September 26, 1980, and amended by
ToronTo
416.255.0993
Toll Free
800.658.7450
protocols signed June 14, 1983; March 28,
1984; March 17, 1995; July 29, 1997; and
September 21, 2007.
rticle V(1) of the Treaty.
A
10
Article V(2) of the Treaty.
11
Don Spence FCA, FCBV, C.ARB
Derek Sanders CA, CBV, CFA
Tracey Harrop-Printz CGA
www.spencevaluation.com
Article V(3) of the Treaty.
12
Article V(4) of the Treaty.
13
Article V(5) of the Treaty.
14
www.tailwindgroup.ca
CPABC in Focus • Sept/Oct 2014 39