Background
The three taxpayers (the “Taxpayers”), which are corporations resident in Countries A, B and C for purposes of Canada’s treaties with those countries, and which have never filed Canadian returns, use employees residing in those respective countries to provide online (e.g., by phone or video) services (“Services”) to patients (“Clients”) in the same time zone. The Taxpayers have now started providing the same Services to Clients in the same time zone as a Canadian province (“Western Clients”) but will not provide Services to any patients located in Canada.
Proposed transactions
In order to accommodate employees who do not wish to work on night shifts in providing Services to Western Clients, the Taxpayers will permit (and financially assist) them to rent short-term accommodation (they will stay no more than 183 days) in such province, so that they can use their home office there to provide Services to Western Clients using computers provided by their employer. The Taxpayers will continue to maintain their servers outside Canada and would have no access rights to such home offices which would not be associated with their names. Such “Assigned Employees” will have no contracting authority, and will not solicit Clients.
Rulings
The Taxpayers will be considered to be carrying on business in Canada in their respective taxation years during which their Assigned Employees are providing Services from the Province. However, they will not be considered to be carrying on business in Canada through a permanent establishment, as defined in Article 5 or V of the applicable treaty, solely as a consequence of such Services being provided by the Assigned Employees.