In 2013-0505911I7, the CRA concluded that “assembly project” in Article 5 of the Canada-Brazil tax treaty should have a meaning similar to “installation project”. Such terms are typically relevant to the question whether a foreign company has a taxable permanent establishment (PE) in Canada. The term “assembly project” in the Canada-Brazil stems from the 1963 OECD Model Tax Treaty and was not defined at that time. Furthermore, no illuminating comments were made when this concept changed in 1977 to “installation project”. Given the lack of any definition of “assembly project” in any treaty or domestic tax legislation, the CRA concluded it would simply apply its positions on the phrase “installation project”. Specifically:
- An installation typically involves tangible property such as machinery or equipment, and the CRA takes a fairly narrow view of what qualifies as an installation activity.
- Installation should be the main activity of the project. If other significant activities are taking place – consulting, modification, or testing (for example) – the project might not be an installation project.