disclaimereyo.tax.ca/ttu/2016/20160216ttu-en.pdf · 2016-02-16 · oecd beps action 7 ... connected...

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This presentation contains informationin summary form, believed to becurrent as of the date of publication,and is intended for general guidanceonly. It should not be regarded ascomprehensive or a substitute forprofessional advice. Before taking anyparticular course of action contact EYor another professional advisor todiscuss these matters in the context ofyour particular circumstances. Weaccept no responsibility for any loss ordamage occasioned by your relianceon information contained in thispresentation.

Disclaimer

Tax Technical Update ‒ February 2016

A Canadian Perspective –Permanentestablishments andrelated withholding taxissuesFebruary 2016

u Sandra is a partner in EY’s People Advisory Services practice. She has vast experience in taxplanning and compliance services on individual and corporate levels; her practice includesexpatriate tax services, cross-border employment arrangements and employee business travel,planning assignments and compensation packages, and advising employers on assignmentpolicies to minimize the overall tax consequences of cross-border employment.

u Sandra also has extensive experience applying Canadian and US tax rules, and income andsocial tax treaties to minimize taxation in multiple jurisdictions.

u Sandra’s industry focus includes financial services and consumer products.

Sandra Hamilton

Partner

Ernst & Young LLP, Toronto

Tel.: + 1 416 941 7794 Email: [email protected]

Presenter ‒ Sandra Hamilton


u Rob is a senior manager with EY’s Tax Controversy and Transfer Pricing practices. Rob has over28 years experience working with the Canada Revenue Agency (with a focus on transfer pricing)for the last 15 years.

u Since joining EY in 2011, Rob has been an integral part of EY’s Tax Controversy and TransferPricing practices. He has assisted clients from a wide range of industries in managing andresolving their tax disputes.

Rob Westwood

Senior Manager

Ernst & Young LLP, London

Tel.: +1 519 646 5593 Email: [email protected]

Presenter ‒ Rob Westwood


Agenda

► Carrying on business in Canada► Permanent establishment

► OECD BEPS recommendations► Canada US Service PE rules

► Withholding tax requirements – Regulations 105 and 102► Employee versus subcontractor► Tax deduction waivers and new form RC473► Tips and traps► Recourse


Carrying on business in Canada


Carrying on business in Canada

► A non-resident of Canada that carries on business in Canada issubject to Canadian tax unless it is exempt under a treaty by virtue ofnot having a permanent establishment (“PE”) in Canada

► Non-residents carrying on business in Canada are required to file taxreturns

► Carrying on business in Canada is a question of fact with a lowthreshold

► Extended definition ‒ Very broad in scope, includes soliciting ordersor offering anything for sale in Canada through an agent or servant,regardless of whether the contract or transaction is completed insideor outside of Canada


Permanent establishment


Permanent establishment (PE)

► Relevance of PE in Canada:

► PE is a tax treaty concept – Article V

► Tax treaty determines if taxable in Canada and extent oftaxation in Canada – Article VII

► PE determines taxability of non-resident employees – ArticleXV



► PE means a fixed place of business through which thebusiness of an enterprise is wholly or partly carried on.

► Asset

► Activity

► Agency

► Additionally, under the Canada-US tax treaty, there is arelatively new “presence test” ‒ Service PE


OECD BEPS ‒Permanent establishments

► OECD BEPS Action 7 – Preventing the ArtificialAvoidance of Permanent Establishment Status

► Preparatory and auxiliary nature exemption

► Splitting contracts

► Agency – Authority to conclude contracts and use of‘independent agents’


Service PE

► Article V paragraph 9 (Canada US Tax Convention)

Subject to paragraph 3, where an enterprise of aContracting State provides services in the otherContracting State . . . that enterprise shall be deemed toprovide those services through a permanentestablishment in that other State if . . .

(b) The services are provided in that other State for an aggregate of 183days or more in any twelve-month period with respect to the same orconnected project for customers who are either residents of that otherState or who maintain a permanent establishment in that other State andthe services are provided in respect of that permanent establishment.



► Other issues:

► Employee presence in Canada

► Business visitors versus working in Canada –Stewardship functions or other activities that do notconstitute carrying on business

► Secondments


Withholding taxes


Regulation 105 ‒ Subcontractors

► Regulation 105

Every person paying to a non-resident person a fee,commission or other amount in respect of services rendered inCanada, of any nature whatever, shall deduct or withhold 15per cent of such payment.


Regulation 102 ‒ Employees

► Regulation 102

Except as otherwise provided in this Part, the amount to bededucted or withheld by an employer

(a) from any payment of remuneration (in this subsectionreferred to as the "payment") made to an employee in histaxation year where he reports for work at an establishmentof the employer in a province, in Canada beyond the limits ofany province or outside Canada, and

(b) for any pay period in which the payment is made by theemployer

shall be determined for each payment . . .


Employee versus subcontractor


Employee or subcontractor?

► In the Canadian landscape on contract for service or ofservice, is he a subcontractor or employee? (Reg. 105 orReg. 102)

Factors to consider:► The level of control the payer has over the worker's activities;► Whether the worker provides the tools and equipment;► Whether the worker can subcontract the work or hire assistants;► The degree of financial risk the worker takes;► The degree of responsibility for investment and management the worker

holds;► The worker's opportunity for profit; and► Any other relevant factors, such as written contracts.


Tax deduction waivers


Tax deduction waivers

► Regulation 105

► Regulation 102► Tax deduction waivers

► Regulation 102-R ‒ Application filed by the employee, not theemployer

► Regulation 102-J ‒ Joint application between the employee andthe employer

► New Form RC473, Application for Non-Resident EmployerCertification► Webcast ‒ Relief from Canadian payroll withholding - foreign

employer certification (Jan 2016)

► Available on the Tax Technical Update Learning page


Tips and traps


Tips and traps

► Evaluate secondments or loaning of employees

► Monitor business activities:

► Carrying on business

► Level of activity

► Travel of employees to Canada

► Number of days present

► Be proactive in addressing waiver issues


Recourse


Recourse

► A voluntary disclosure is a good option

► If under audit, identify the key information and work withthe CRA to minimize the disruption to the business andemployees/subcontractors

► After the audit, recourse can be sought:

► Notice of Objection

► Request for tax treaty relief

► Working cooperatively with employees/subcontractors


Summary

► Carrying on business

► Creates a requirement to file an income tax return andpotentially withholding tax issues

► Tax treaties can reduce or relieve taxation

► Waivers and other administrative tools can reduce theimpact of the withholding and filing requirements

► It is important to track your presence in Canada


Now available


Sandra HamiltonPartner

+ 1 416 941 [email protected]

Thank you


Rob WestwoodSenior Manager+1 519 646 5593

[email protected]

Thank you!

To subscribe to EY Client Portal andour learning events, please contactMarisa Neim at 416 943 3056 or e-mail [email protected]

Next Tax Knowledge Forum:9 March 2016

Next Tax Technical Update:Available by 29 February 2016

disclaimereyo.tax.ca/ttu/2016/20160216ttu-en.pdf · 2016-02-16 · oecd beps action 7 ... connected...

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