Many of the risks and financial benefits of two large Canadian construction “Projects” will be those of a non-resident company (“ForCo”) (which is a treaty resident of an unnamed country), while at the same time a permanent establishment of ForCo in Canada under the Treaty will be avoided. A Canadian sister company of ForCo (“CanCo”) entered into the Project contracts, but subcontracted to ForCo the work that did not entail direct construction or installation work.
However, various ForCo employees are key to the Projects, including the construction work, which in theory will be carried on only by CanCo. Their involvement will be handled in two ways. Some of ForCo’s employees will be “seconded” to the ForCo, so that they will be treated as CanCo employees, notwithstanding that they will stay on the ForCo payroll. Second, in the case of ForCo employees whose role does not require them to attend the construction sites, they will come to the CanCo offices (outside the construction sites) for meetings, which are stipulated to “never exceed an aggregate of 90 days over any 12 month period.”
CRA ruled that there will be no Reg. 105 withholding on the payroll reimbursement payments made by CanCo to ForCo.