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| Corporations - Permenant Establishments in Canada In making a determination of whether or not a PE exists, there are numerous factors to be considered that are outlined in the OECD Model Commentary and derived from jurisprudence. Which factors are most relevant in any particular case will be largely dependent on the nature of the taxpayer’s business. Carrying on the Business Since the PE definition itself clearly states that the non-resident must carry on his business wholly or partly through the fixed place of business, we are of the view that it is not necessary for the non-resident to carry on all aspects of his business in Canada in order to have a PE in Canada. Taking a different view could result in only the headquarters of a business ever being considered a PE and this would generally defeat the purpose of Article 5 (Permanent Establishment) and Article 7 (Business Profits) of our treaties since the headquarters of a business are generally located in the state of residence of the person carrying on the business. PE Analysis Framework PE is generally defined under our treaties as “a fixed place of business, through which the business of an enterprise is wholly or partly carried on”. According to the OECD Model Commentary on Article 5, this definition therefore contains the following conditions: (1) There must be a place of business. (1) Is there a place of business? Examples • Space at disposal. If the non-resident doesn’t own or rent the premises, is there any amount of space at the disposal of the non-resident? or • Employee’s presence. Is an employee of the non-resident allowed to use an office in the place of business of another company for a long period of time? (2) Is the place of business fixed? Examples • Duration. What is the duration of the activities of the non-resident at the particular place in Canada? • Coherent whole. If the nature of the business activities is such that the activities are often moved between neighboring locations, do those locations constitute a single geographical and commercial whole and, therefore, one single place of business to which the duration test can be applied? • Recurrence. Is the presence of the non-resident at the place in Canada recurrent? (3) Is the business of the non-resident wholly or partly carried on through this fixed place of business? Examples • Regularity of the activities. Are the non-resident’s operations carried out on a regular basis? • Scale of the activities. What is the scale of the activities carried on in Canada in terms of investment, employees, or equipment involved and deployed at the place of business in Canada? For example, were there persons with authority to carry on some part of the non-resident’s moneymaking activities present at the particular place in Canada? • Functions. Is the location in Canada a place where the non-resident is performing the most important functions of its business? Other Examples • Actual use of the location. What is the actual use made by the non-resident of a location in Canada that is alleged to be his fixed place of business? • Legal control. By what legal right the non-resident exercised or could exercise control over the location in Canada? • Degree of identification. To which degree the location in Canada is objectively identified with the non-resident’s business? Different factors could be relevant in different cases. Not all the factors would necessarily be applicable in all cases. The discussion above is only intended to provide some examples of factors that could be considered.
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