Question
Consider a situation where a US-resident consulting company seconds one of its employees to its Canadian subsidiary for eight months to act as interim chief financial officer. The employee remains on the US payroll, but those costs are reimbursed by the Canadian company and the employee is under the supervision of the Canadian subsidiary’s executive team. Could Article V(9) apply to give rise to a deemed PE?
Response
Where an enterprise of the United States is merely reimbursed for the amount of its compensation costs in respect of an employee that has been seconded to a resident of Canada and the employee is under the supervision of that resident of Canada, the enterprise of the United States would not be seen as providing services in Canada. In the case described above, the employee would be seen as performing his or her duties of employment in his or her capacity as an employee of the Canadian subsidiary only, and Article V(9) would not apply. However, the employee’s remuneration would be taxable in Canada pursuant to Article XV, provided that it exceeds $10,000.