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TEI comments on revised GST/HST policy statement P-208R: permanent establishment: October 26, 2004.

On October 26, 2004, Tax Executives Institute filed the following comments with Canada Revenue Agency on the Revised GST/HST Policy Statement P-208R: Permanent Establishment. The comments were prepared under the aegis of TEI's Canadian Commodity Tax Committee, whose chair is Sherrie Ann Pollock of Royal Bank of Canada.

On behalf of Tax Executives Institute, I am pleased to provide comments on the Revised GST/HST Policy Statement P-208R D Permanent Establishment. The purpose of this revised Policy is to simplify the determination whether a non-resident of Canada does, in fact, have a permanent establishment for GST purposes and is required to register. We understand that the application of the permanent establishment concept may, in some cases, be somewhat broader for GST purposes than for income tax purposes. We also understand that the new policy pertaining to "carrying on business in Canada" will complement the permanent establishment discussion. While the Revised GST/ HST Policy Statement P-208R is well drafted and will be generally useful in the administration of GST/HST for non-residents, we offer these comments to help clarify the policy.


Tax Executives Institute is the preeminent association of business tax professionals. TEI's 5,400 members work for 2,800 of the largest companies in Canada, the United States, and Europe. TEI's membership includes representatives from a broad cross-section of the business community, with members employed in all major industries and sectors of the economy. In that sense TEI is unique N we do not represent a particular group or industry. Canadians make up approximately 10 percent of TEI's membership, with our Canadian members belonging to chapters in Calgary, Montreal, Toronto, and Vancouver. In addition, the bulk of TEI's U.S. and European members work for companies with substantial Canadian operations or sales.

Specific Comments

The Institute applauds Canada Revenue Agency's efforts to clarify the permanent establishment issue. We do suggest, however, that certain changes (described below) will improve the Policy.

1. Example 7--Electronic Commerce--Data Storage

Example 7 outlines CRA's position that a non-resident does not have a permanent establishment in Canada in a situation where the non-resident leases a server in Canada and also operates and maintains it. We suggest the example be expanded to illustrate what the determination would be when the Canadian lessor operates and maintains the server that the nonresident is leasing. We also suggest the example be expanded to show the result when the non-resident operates and maintains the server, as well as when the Canadian supplier operates and maintains the server.

2. Example 9--Leasing of Equipment

Example nine outlines the CRA's position that a non-resident does not have a permanent establishment in Canada in a situation where the Canadian customer is responsible for the ongoing operation and maintenance of the equipment being leased. In many circumstances, the lessor also provides maintenance services to the lessee. We recommend that the example be expanded to outline the CRA's position whether a permanent establishment of the lessor results when the lessor also provides the maintenance services, either under the leasing contract or under a separate contract. Does the number of actual, physical maintenance services provided under contract affect the permanent establishment determination? What if there was none?

3. Example 11--Road Construction

Example 11 outlines the CRA's position that a non-resident does have a permanent establishment in Canada in a road construction situation. We suggest an additional example to address supply and install contracts. Also, CRA should address the situation where a non-resident enters into two contracts, one for the supply of goods and a second for installation of the goods. Would the non-resident still have a permanent establishment if it subcontracted the installation contract to a vendor in Canada for performance rather than coming into Canada to perform the work themselves?

4. Desirability of Revising RC4027 in Light of P208R

Example 9 describes circumstances where a technician comes to Canada and performs installation for a piece of equipment that the technician's company supplied. This example is typical of what occurs in respect of these types of transactions. Please comment whether a permanent establishment is created in accordance with P208R. We note the date of RC4027 is September 22, 2000. It may be necessary to revise this document in light of the Revised Policy Statement P208R and the upcoming Policy Statement in respect of "carrying on business in Canada."


Tax Executives Institute appreciates this opportunity to present our views in respect of this Revised Policy Statement.

The Institute's comments were prepared under the aegis of the Institute's Canadian Commodity Tax Committee, whose chair is Sherrie Ann Pollock. If you have any questions or concerns, please contact Ms. Pollock at 416.955.7373 ( or David M. Penney, TEI's Vice President for Canadian Affairs, at 905.644.3122 (
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Title Annotation:Tax Executives Institute, goods and services tax/harmonized sales tax; Canada
Publication:Tax Executive
Date:Nov 1, 2004
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