Canada's treaties - Article 7 Paragraph 1

To ensure that business profits are not double taxed, Article 7 of Canadian treaties lays out the details of how they will be taxed.

The Canada-Belgium Tax Treaty is a good example. In paragraph 1 of Article 7, it tells us that carrying on a business is not sufficient to be required to pay taxes in the other country - the enterprise must be carrying on a business in a permanent establishment (PE). Of course, you need to refer back to Article 5 to determine if you have a PE.

Without the treaty, a great many business enterprises would be taxable wherever they solicit sales. For instance, in Canada, the extended meaning of carrying on a business under the Income Tax Act includes anyone who "solicits orders or offers anything for sale" regardless of whether the transaction is completed in Canada or not.

Paragraph 1 also covers PEs that no longer exist, so a delay of payment will not change the attribution of the tax.