United States Permanent Establishment Enforcement And Expansion

Article by David Hardy , Kevin Colan , William Corcoran , Michael Radolinski , Paul Seraganian and Sina Akbari

Recently, U.S. Internal Revenue Service (IRS) and Department of Treasury officials made statements expressing the increasing focus of U.S. enforcement activity and audit scrutiny on permanent establishment issues.¹ In addition, newly effective changes enacted by the Fifth Protocol to the Canada-U.S. Tax Treaty expand the circumstances in which a Canadian corporation can be deemed to have a U.S. permanent establishment. Permanent establishment issues can be particularly worrisome to North American corporations operating in both Canada and the United States, where efficient operational decision-making often requires cross-border reporting and divisional integration. Canadian and other non-U.S. corporations operating in the United States should be sensitized to the potential increase in U.S. permanent establishment audit activity, while companies