CANADA has recently widened the
scope of interpretation of permanent establishment under the Canada-US Income
Tax Convention with effect from Jan 1, 2010
Under the new rules, a US corporation
would be deemed to have a PE in Canada if it either;
performed services in Canada through an
individual who was present in Canada for an aggregate of 183 days or more in any
given 12 month period and during that period more than 50 per cent of the gross
active business revenues of the enterprise consisted of income derived from the
services performed in Canada by that individual OR
provided services in Canada for an aggregate of
183 days or more in any given 12 month period with respect to the same or
connected projects for Canadian customers.
Earlier, before this amendment, a
corporate resident in the US was generally deemed to have a PE in Canada if it
had a fixed place of business or a dependent agent who habitually exercised the
authority to conclude contracts on behalf of the US corporation.
A US corporation thus deemed to have
a PE in Canada would be subjected to Canadian tax return filing obligations and
required to pay tax to the CRA on business profits attributable to that
PE.
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