Overview
This interpretation addresses how a non-resident corporation may be considered to have a Permanent Establishment (PE) under the Canada–U.S. Tax Treaty, and how Canadian domestic law interacts with Treaty rules when determining tax liability.
CRA discusses:
Factors that create a PE
Activities that do not create a PE
The role of dependent and independent agents
Construction and service PE thresholds
Treatment of subsidiaries
When Canadian taxation applies to a foreign business
Practical criteria CRA uses to evaluate PE status
The analysis is entirely based on CRA’s interpretation of Article V of the Treaty and relevant provisions of the Income Tax Act (ITA).
1. Meaning of Carrying on Business in Canada
(Relevant: ITA 2(3), 248(1), 253)
Under domestic rules, a non-resident is taxable in Canada if it is carrying on business in Canada, even if it has no physical presence.
CRA notes the following:
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The definition of “business” under ITA 248(1) is broad.
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ITA 253 deems certain activities to constitute carrying on business in Canada, including:
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soliciting orders
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maintaining an agent in Canada
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activities performed on behalf of the non-resident
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A corporation may be considered to carry on business in Canada based on activities directed at Canadian customers or markets.
However, when a Treaty applies, PE rules determine whether income is actually taxa
2. Fixed Place of Business PE Tests
3. Dependent Agent PE
(Relevant: Treaty Article V(5))
A dependent agent PE exists if a person in Canada:
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habitually exercises authority to conclude contracts on behalf of the non-resident, or
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habitually plays the principal role leading to contract conclusion.
This applies even when:
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the foreign corporation has no office in Canada
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the agent is not formally called an “employee”
CRA emphasizes:
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Actual conduct is more important than written titles.
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A dependent agent can create a PE even without a fixed place.
4. Independent Agent Exception
(Relevant: Treaty Article V(6))
A non-resident is not considered to have a PE if:
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business is carried on through a broker, general commission agent, or other independent agent, and
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the agent acts in the ordinary course of their business.
CRA stresses that the agent must be legally and economically independent, not merely structured to appear independent.
5. Subsidiary Does Not Automatically Create a PE
(Relevant: Treaty Article V(7))
CRA reiterates:
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A Canadian subsidiary does not automatically create a PE for its non-resident parent.
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However, a PE may exist if:
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the subsidiary’s premises are effectively used by the non-resident,
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the subsidiary acts as a dependent agent, or
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activities exceed preparatory or auxiliary functions.
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The parent–subsidiary relationship alone is not determinative.
Key Takeaways
- A non-resident may be carrying on business in Canada without a PE under domestic law, but the Treaty determines taxability.
- A Permanent Establishment exists if the foreign business has a fixed place, dependent agent, or long-term construction presence.
- Independent agents generally do not create a PE.
- A subsidiary does not automatically give rise to a PE.
- Preparatory or auxiliary activities do not create a PE unless they become core business functions.
- Determining PE status requires a functional, factual analysis.
Disclaimer
This page summarizes CRA technical interpretations from the uploaded documents. These interpretations may not represent current CRA policy. This information is for general educational purposes only and does not constitute tax or legal advice.
Redaction Notice
All names, phone numbers, office locations, signatures, and confidential identifiers from the original CRA documents have been removed to protect privacy and comply with publishing guidelines.
