In 2014-0558661I7 (recently released), the CRA was asked to consider the case of two US persons carrying on a service business in Canada through a fiscally-transparent US partnership.  The question was how the permanent establishment (PE) rule in Article V(9) of the Canada-US tax treaty (the treaty), pertaining to services, would be applied to the examples presented.  The CRA said the following:

  • The term "enterprise" in Article V(9) of the treaty refers to a business carried on by each partner through the partnership. The determination of whether that business is carried on through a PE in Canada is to be made at the partnership level (see page 5).
  • If the partnership is found to have a PE in Canada, each partner will also be found to have a PE in Canada (see page 5). 
  • The partnership’s profit attributable to a PE in Canada will be allocated to each partner to the extent of the partner’s share of that profit.  Accordingly, a partner who is never physically present in Canada could well be liable to pay tax in Canada – i.e., in respect of the partner’s share of the partnership’s profit attributable to the PE in Canada (see page 9).