Canada's treaties - Article 5 PE Part 2

The remaining paragraphs of Article 5 are very important and can differ with each treaty.

For instance, in the treaty with Bangladesh, paragraphs 3 and 4  expand on what will, and will not be considered to be a PE.  Details such as a warehouse for storage will not be considered to be a PE but an employee with the ability to sign contracts will likely cause the business to have a PE.

There is often also a paragraph excluding a business from having a PE simply because they have an agent in the country.  Another standard exclusion ensures that owning a subsidiary located in the other country will not cause you to have a PE.

You always need to look at this article for 'special' circumstances.  Such as the Canada-US treaty which includes a rule on services where an individual is in the other country for more than 183 days or the Canada-Barbados treaty which includes rules on insurance risks and premiums.

Canada's treaties - Article 5 Permanent Establishment

Article 5 of most treaties deals with what will be considered to be a "permanent establishment" (PE). This is important because, if a person is doing business through a PE in another country, normally the tax will be retained by the country where there is a PE.

Paragraph 1 usually has a short broad definition. Paragraph 2 has pretty standard definitions. Such as the ones in the Azerbaijan treaty which indicate that a PE will include a place of management, a branch, an office or factory, workshop or mine.

The important word in paragraph 2 is "include".  It provides for additional possibilities.  That means that there may be many other possibilities as well.

Canada's treaties - Article 4 Residence of Individuals

The big issue in treaties is where the taxpayer will pay tax. Often it comes down to where you are resident. Article 4 determines where you will be considered resident under the treaty.

The first part is usually to look at whether the person is resident in that country for purposes of it's tax if there was not treaty. Often that results in you being resident in both countries. All treaties have tie-breaker rules when this happens.

The tie-breaker rules for individuals can be fairly standard, but can be multi-step. The treaty with Australia is an example of only two steps. First you go with the country where you have a permanent home. If you don't have a permanent home, or have two, then you look at the personal and economic relations.

The treaty with Austria continues those two steps in the event of further ties by following with habitual abode and then nationality. Like many treaties, Austria's treaty with Canada indicates that if the matter is not settled in the content of the treaty, the Competent Authorities will have to decide.