Key role of ForCo in Projects
CanCo (an indirect CBCA subsidiary of a foreign public company), which had knowledge of the Canadian markets and whose Canadian customers preferred local suppliers, entered into contracts to perform two Canadian projects (the “Projects”). Various important tasks were subcontracted to its sister company which is resident in the “Treaty” county for purposes of that Ttreaty (“ForCo”), none of which will include physical construction or installation activities, or on-site planning or supervision of the Projects (nor will there be any “physical indications that would create any degree of identification of a location in Canada as ForCo’s business location.”) The Project performance will be highly dependent on the subcontracted tasks to be executed by ForCo. This allocation of Project risks “may result in ForCo effectively assuming most of the [Project] risks… consistent with the economic reality of ForCo having the financial capacity to bear risk.”
Secondments of ForCo employees to CanCo
CanCo will require the assistance, in Canada, of some of ForCo’s employees, who will be seconded to CanCo. The obligations of ForCo respecting them will be limited to their provision to CanCo under the “Secondment Agreement.” ForCo and CanCo intend an employer/employee relationship between CanCo and the seconded employees, so that the seconded employees will be under the control and direction of CanCo. However, they will continue to be paid by ForCo. All costs relating to their remuneration will be reimbursed by CanCo, with no mark-up. “Transfer prices for transactions between CanCo and ForCo will be determined in accordance with the arm’s length principle reflecting the functions and risks of both parties and will be supported by proper documentation.”
Meetings of non-seconded ForCo employees in Canada
Meetings will be held at CanCo’s office (located outside of the construction/installation site) or at the XX premises. The non-seconded employees of ForCo coming to Canada for the meetings will not have any presence at the construction/installation site or involvement in the construction/installation activities or on-site planning or supervision of the Projects. “These meetings will typically last for a few days only and, exceptionally, up to a few weeks…[and,] in any event, will never exceed an aggregate of 90 days over any 12 month period. As a result, the total amount of time to be spent by the non-seconded employees of ForCo in Canada in the course of ForCo’s work for the Projects will be insignificant relative to the total amount of time spent by ForCo for the Projects.”
Rulings
No Reg. 105 withholding re payroll reimbursements to ForCo.
ForCo will not be considered to carry on business through a permanent establishment, as defined in Article 5 of the Treaty, situated in Canada solely as a consequence of the secondment under the Secondment Agreement of certain employees of ForCo to work for CanCo in Canada in respect of the Projects, as described in paragraphs 12 and 13 above [describing the secondment arrangements], or the Projects’ tasks subcontracted to, and executed by, ForCo, as described in paragraphs 14 to 18 above [which include descriptions of the meetings and the task division].