2.
The maintenance of a stock of goods or merchandise belonging to the resident for the purposes of storage, display or delivery.
3.
The maintenance of a stock of goods or merchandise belonging to the resident for the purpose of processing by another person.
4.
A purchase of goods or merchandise, or the collection of information, for the resident.
5.
Advertising, the supply of information, scientific research or similar activities which have a preparatory or auxiliary character, for the resident.
Therefore, a U.S. entity will not have a permanent establishment in Canada by reason only of having sales representatives in Canada to offer products for sale, provided that these agents (i) do not have the authority to conclude contracts on behalf of the U.S. entity or (ii) are independent and acting in the ordinary course of their business. If the U.S. entity contemplates establishing a fixed centre for its Canadian operations, care should be taken to ensure that the centre is not a permanent establishment. For example, it could be limited to functioning as a warehouse for the storage of goods awaiting delivery or processing, or as a display area. Any significant presence the U.S. entity will have at a Canadian location needs to be reviewed to determine whether it amounts to a permanent establishment. A building site or construction or installation project is a permanent establishment if, but only if, it lasts more than 12 months. The provision of other types of services in Canada for 183 days or more may result in a permanent establishment. If the U.S. entity has a permanent establishment in Canada, it will be subject to Canadian tax on business profits attributable to the permanent establishment. While similar rules apply for Canadian provincial income tax purposes, these rules should be reviewed for each province in which the U.S. entity will operate, as there are sometimes significant differences between provincial definitions of “permanent establishment” and the definition in the Convention discussed above.
1.3 Canadian Branch If it is undesirable for the U.S. entity to restrict its Canadian business in the manner described above to avoid having a permanent establishment in Canada, an alternative would be to establish and operate a Canadian branch out of office premises situate in Canada. 1.3.1
Advantage of a branch operation
One advantage to the use of a branch operation would normally arise when it is anticipated that the branch will incur substantial losses in the first several years of operation. In this case, organization through a branch might enable such losses to be included in the consolidated tax return of the parent corporation and deducted against income from other sources. In general, a branch may be useful where a “flow-through” structure is desirable from the U.S. tax perspective. An alternative would be to consider incorporation of an entity which might be treated as a branch for U.S. tax purposes, such as a British Columbia, Alberta or Nova Scotia unlimited
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BLAKE, CASSELS & GRAYDON LLP