Question
Consider a situation where the US-resident consulting company seconds one of its employees to its Canadian subsidiary for eight months to provide services in Canada to a Canadian client. The employee remains on the US payroll, but the US company charges the Canadian subsidiary 85 percent of the employee’s regular per diem rate for the use of the employee’s services. 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
It appears that Article V(9) could apply to give rise to a PE in Canada. However, only the profits of the parent that are attributable to the functions performed and the risks assumed by the provision of services in Canada by the parent would be attributed to the deemed PE. The employee’s remuneration would be taxable in Canada pursuant to Article XV, provided that it exceeds $10,000.