Permanent Establishments - Canadian Update

The determination of whether a permanent establishment (PE) exists in Canada has always been the subject of confusion and uncertainty for non-resident taxpayers doing business or contemplating doing business in Canada. While the introduction of paragraph 9 of Article V of the Canada-U.S. Tax Convention (Treaty) in the Fifth Protocol clarified some PE issues involving Canada and U.S. service providers, much confusion and uncertainty still exists with many everyday inbound business activities.

On October 12, 2011 the Centre for Tax Policy and Administration of the Organisation for Economic Co-operation and Development (OECD) released a discussion draft entitled Interpretation and Application of Article 5 (Permanent Establishment) of the OECD Model Tax Convention (PE Discussion Draft and OECD Model). On October 19, 2012, the OECD released a revised version of the PE Discussion Draft based on feedback from the international tax community. The PE Discussion Draft proposes