Article V, paragraph 3, of the Canada-US tax treaty (Treaty) provides that a “building site or construction or installation project” constitutes a permanent establishment (PE) if, but only if, it lasts more than 12 months.  Furthermore, Article V, paragraph 9(b), of the Treaty provides that where a U.S. enterprise does not otherwise have a PE in Canada (under the other paragraphs of Article V), that enterprise is deemed to have a PE in Canada if and only that enterprise provides services in Canada for an aggregate of 183 days or more in any 12-month period with respect to the same or connected project for Canadian-resident customers (or for a Canadian PE of non-resident customers).  In 2013-0475161I7, the CRA confirmed its guidance on a number of conceptual questions arising from these two paragraphs in the context of a U.S. resident parent company (US Co) providing intellectual, planning, and supervisory services – in Canada – to its numerous Canadian affiliates in respect of various development operations of these Canadian affiliates.

  1. Seconded Employees: If US Co’s employees are in fact under the supervision of (seconded to) the Canadian affiliates, then the services provided by these U.S. employees would not be counted in determining whether US Co itself has a PE in Canada (see p. 5).
  2. Intellectual Services: Intellectual, planning, and supervisory services are relevant for determining a PE under Article V, paragraph 3, butonly those services that are actually rendered at the site (see p. 7).
  3. Paragraph 3 vs Paragraph 9: If a PE exists under Article V, paragraph 3, only those services provided offsite would be considered in determining whether a PE also exists under Article V, paragraph 9.  If no PE exists under Article V, paragraph 3, then all of the services in Canada can be considered in determining whether a PE exists under Article V, paragraph 9 (see p. 22).
  4. Enterprise: The term “enterprise” in Article V, paragraph 9 refersonly to a particular “line of business” carried on by US Co.  Therefore, where US Co carries on two lines of business, for example, US Co may have a PE by reference to one line of business but not the other (see p. 11).  A “line of business” will be determined based on the Canadian domestic concept of “separate businesses” (see p. 11).
  5. Integrated Business: Here the CRA viewed US Co as carrying on asingle integrated business, being the business of planning and executing development projects in Canada for its Canadian affiliates (see p. 14).