ACo is a British company that performed seismic surveys offshore Canada. BCo is a Norwegian company that provided a crew to Aco under a service agreement to work in Canada during the period. BCo had a permanent establishment in Canada pursuant to Art. 21 - Offshore Activities of the Canada-Norway Tax Convention. The employees of BCo working in Canada were resident in various countries (Australia, France, Netherlands, Brazil, Egypt, U.K., Norway, U.S., Sweden and Denmark) and were present in Canada for less than 183 days. BCo had a PE in Canada under the terms of some but not all of the treaties between Canada and the countries where the employees were resident.
Which treaty determines whether the employer has a permanent establishment? CRA responded:
[I]n applying subparagraph 2(c) of the "Income From Employment" article of Canada's income tax treaties, we will look to the treaty between Canada and the country where the employee is resident to determine if the employer has a PE in Canada.
When asked how the treaty with the different countries of residence of the employees should be applied, CRA discussed the treaties with Sweden, Australia, France, Egypt (with a 90 days presence test), and the U.S. (all of which did not have an offshore activities article) and those with Norway, the Netherlands, Denmark and the U.K. (which did). Respecting the Norwegian and Netherlands treaties, CRA stated:
Paragraph 1 of Article 21 of the Canada-Norway Treaty - Offshore Activities states that Article 21 applies notwithstanding any other provision of the treaty. …
Subparagraph 5(a) of Article 21 states that…remuneration derived by an employee who is resident in Norway in respect of employment connected with the exploration or exploitation of the seabed and subsoil and their natural resources situated in Canada may be taxed in Canada, but only if the employment exceeds 30 days in any 12-month period. Therefore, if the employment exceeds 30 days, remuneration paid by BCo to employees who are resident in Norway may be taxed in Canada.
… Paragraph 3 of Article 23 [of the Netherlands Treaty] provides…that "an enterprise of one of the States" will be deemed to be carrying on business in Canada through a permanent establishment if the enterprise carries on Offshore Activities in Canada for more than 30 days in any 12 month period. Since BCo is not an "enterprise of one of the States" (i.e. either Canada or the Netherlands), paragraph 3 of Article 23 does not apply. Therefore BCo does not have a PE in Canada for purposes of the Canada-Netherlands Treaty.