Where a US company (USCo) subcontracts part of its contract, to perform consulting services to an arm's length Canadian customer (Canco) to related US corporation (USCo 2), whose employees will spend over 183 days in Canada on the project in a 12 month period, then s. 9(b) of Art. V of the Canada-US Convention will deem the services to have been provided by USCo through a permanent establishment in Canada. (and USCo 2 will be deemed to have provided its services to USCo through a permanent establishment of USCo 2 in Canada). Furthermore:
as the discussion in paragraph 42.43 of the [OECD] Commentary pertains to the interpretation of wording that is materially unlike the wording of subparagraph 9(b) or Article V of the Convention…. it is not of assistance in interpreting the latter provision.
However, where after entering into the contract with Canco, USCoinstead subcontracts a portion of the work to a Canadian subsidiary of USCo or an arm's length Canadian company, USCo will not be considered to have a PE in Canada provided such Canadian company is paid an arm's length fee – and similarly, if a US professional firm subcontracts part of its consulting contract with Canco to an arm's length Canadian professional partnership.