Principal Issues:
Is a non-resident corporation touring in Canada considered to have a permanent establishment in each province where performances are presented under paragraph 400(2)(e) of the Regulations?
Position:
Yes, depending on the facts of the particular situation.
Reasons:
The requirements of paragraph 400(2)(e) have been satisfied by the non-resident corporation in XXXXXXXXXX and the non-resident corporation reports having a permanent establishment in a particular jurisdiction. See the position set out in Provincial Income Allocation Newsletter, No. 2 February 2010.
April 16, 2010
Mr. Frédéric Bourgeois, CGA Headquarters
Audit Division Income Tax Rulings Directorate
Ottawa TSO
Danielle Bouffard
(613) 590-2155
2010-036260
Paragraph 400(2)(e) of the Income Tax Regulations (the "Regulations")
This memorandum follows up on the memorandum that we sent to you on March 2, 2010 (2009-034695) and takes into account additional information that you sent to us on March 29, 2010 concerning, inter alia, the cost incurred by a Non-Resident Corporation of renting, transporting and installing equipment when presenting shows in Canada in XXXXXXXXXX.
In a telephone conversation on April 6, 2010 (Bourgeois/Godin and Bouffard), you indicated that a non-resident corporation claimed a deduction under subsection 124(1) of the Income Tax Act (the "Act") for its XXXXXXXXXX taxation year. In addition, you informed us that the equipment used by the Non-Resident Corporation in connection with the performances for the Artist was considered to be of sufficient importance to constitute a permanent establishment for the purposes of paragraph 400(2)(e) of the Regulations at each of the venues where performances were mounted by the Non-Resident Corporation.
In our letter of March 2, 2010 (last page), we noted that a CRA position set out in a Roundtable discussion was that, for a corporation to be deemed to have a permanent establishment in a province or jurisdiction for the purposes of paragraph 400(2)(e) of the Regulations, generally the equipment or machinery must be used either for a period of more than 30 consecutive days per site or project or for a period of more than 90 consecutive days within a 12-month period for all projects. We therefore issued the following opinion:
Since, based on the facts of the particular situation, the non-resident corporation used the concert equipment in each of the provinces where performances were produced for a period of less than 30 consecutive days and throughout Canada for a period of less than 90 consecutive days, we are of the view that it is not deemed to have a permanent establishment in any of the provinces in XXXXXXXXXX for purposes of paragraph 400(2)(e) of the Regulations.
It appears that our interpretation of the CRA position was wrong. Indeed, as XXXXXXXXXX pointed out to us during a telephone conversation, the position of the CRA, as it appears in the Provincial Income Allocation Newsletter, No. 2, February 2010 includes the following:
If a taxpayer reports having a permanent establishment in a particular jurisdiction for a narrower time frame, no reassessment will be issued, provided that the taxpayer complies with federal and provincial legislative requirements.
Paragraph 400(2)(e) of the Regulations provides that "where a corporation uses substantial machinery or equipment in a particular place at any time in a taxation year," the corporation is deemed to have a permanent establishment. Since you are of the opinion that the requirements of paragraph 400(2)(e) have been satisfied by the Non-Resident Corporation in XXXXXXXXXX and the corporation reported having a permanent establishment in a particular jurisdiction, the Non-Resident Corporation is deemed to have a permanent establishment for its XXXXXXXXXX taxation year in each province in which performances were mounted for the purposes of paragraph 400(2)(e) of the Regulations and the application of subsection 124(1) of the Act.
We hope that these comments are of assistance. Should you require additional information regarding the content of this document, please do not hesitate to contact us.
Alain Godin, Manager
for the Director
International Operations and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.