US Insurers Have No PE In Canada

On May 16, 2008, the Tax Court of Canada released its judgments in American Income Life Insurance Company v. The Queen and Knights of Columbus v. The Queen. In both cases, the Court held that two U.S. insurers were not subject to Canadian income tax on their business profits associated with sales of insurance policies to Canadian insureds because neither of the insurers had a permanent establishment ("PE") in Canada within the meaning of the Canada-U.S. Income Tax Convention (the "Treaty"). Under the Treaty, a resident of one treaty country is not taxable on its business profits arising in the other treaty country unless the resident has a PE in the other treaty country. If the resident does have a PE in the other treaty country, the resident is taxable on its business profits in the other treaty country only to the extent that the business profits are attributable to the PE. In both of the judgments,