Permanent Establishments
In its decision in Toronto Blue Jays Baseball Club v. Ontario 2005, O.J. No. 485, the Ontario Court of Appeal held that locker rooms and other designated spaces provided to the Toronto Blue Jays, Maple Leafs, and Raptors when they play outside Ontario are not permanent establishments (“PE”) of those organizations for purposes of Ontario’s Employer Health Tax Act. An application for leave to appeal was submitted to the Supreme Court of Canada on August 8, 2005.
Question
What influence, if any, has the recent Ontario Court of Appeal decision in the Blue Jays decision had on PE issues?
Response
The Tax Court of Canada is not bound by decisions rendered by the Ontario Court of Appeal. The decision of a court of another jurisdiction only acts as persuasive authority. The degree of persuasiveness is largely dependent upon the similarity between the provincial legislation and the federal legislation and upon the interpretation principles applicable to each.
One should be careful in importing jurisprudence regarding provincial tax legislation to the analysis of tax treaties. The PE definition under provincial health tax legislation differs from the PE definition under Canada’s tax treaties. For example, the Ontario’s Employer Health Tax Act states that a PE “includes any fixed place of business” while Article 5 of our treaties states that a “PE means a fixed place of business through which the business of an enterprise is wholly or partlycarried on”. Also, the Quebec Taxation Act and the Act respecting the Régie de l’assurance-maladie du Québec refer to “establishment” as opposed to “permanent establishment”, and have significant distinctions and particularities within the definition. Such departures from the treaty PE concept necessarily lead to a different analysis, if not to a different conclusion.
But the CRA agrees with the conclusion that, in general, a visitor’s locker room would not be a PE under our treaties for a professional sports team. The analysis done by the Ontario Court of Appeal in reference to this issue under Ontario’s Employer Heath Tax Act would fall short of what is necessary in the determination of a PE under tax treaties. For example, a complete treaty analysis of a PE would have to be broken down into the three elements of the definition under Article 5 of the relevant tax treaty and would refer to the OECD Commentary for guidance. Paragraphs, such as paragraphs 4 to 4.5 of the OECD Commentary, would have been relevant to the PE analysis if the case had occurred in a treaty context.
Also, most provincial tax legislation deems a corporation to have a PE (or an “establishment”) at the place where it uses substantial machinery or equipment. This additional departure from the treaty PE definition explains why, in the decision Club de Baseball Montréal ltée c. Québec, [1995] J.Q. no 3222 (which case is factually similar to the Blue Jays case), it was concluded that the visitor’s locker rooms in stadiums of other teams constituted “establishments of the employer” for the Montréal Baseball Club. Therefore, the application of the Quebec health tax legislation and the Ontario health tax legislation to similar fact scenarios produced opposite results.
Therefore, we believe that the Blue Jays decision is of little persuasive value to treaty interpretation. We would also note that the Blue Jays have sought leave to appeal and we will have to see whether the Supreme Court grants the leave application.