QUESTION:
I have a client corporation whom operated a circus for a few weeks in
Canada. He earned $20,200 gross income and was issued a 1099. Canada is
requesting a tax return FormT2 which I filed claiming an exemption under the
Us Canadian tax treaty. They now are asking for a Schedule 91. I printed
this form and it asks in line 4 to identity the treaty, article and
paragraph under which this exemption apllies. He paid all his taxes in the
United States and I do not feel he should pay double taxes. Can you help me
answer the questions pertaining to Form T2, Schedule 91, Line 4. Thank you!
========================
david ingram replies:
Usually, I would tell you to pay Canada the tax and claim the credit on the
US return. However, I would not think that a travelling circus act would be
a permanent establishment. You need Article VII of the US / Canada Income
Tax Convention as follows:
Article VII
Business Profits
1. The business profits of a resident of a Contracting State (USA) shall be
taxable only in that State unless the resident carries on business in the
other Contracting State (CANADA) through a permanent establishment situated
therein. If the resident carries on, or has carried on, business as
aforesaid, the business profits of the resident may be taxed in the other
State (CANADA) but only so much of them as are attributable to that
permanent establishment.
2. Subject to the provisions of paragraph 3, where a resident of a
Contracting State carries on business in the other Contracting State through
a permanent establishment situated therein, there shall in each Contracting
State be attributed to that permanent establishment the business profits
which it might be expected to make if it were a distinct and separate person
engaged in the same or similar activities under the same or similar
conditions and dealing wholly independently with the resident and with any
other person related to the resident (within the meaning of paragraph 2 of
Article IX (Related Persons)).
3. In determining the business profits of a permanent establishment, there
shall be allowed as deductions expenses which are incurred for the purposes
of the permanent establishment, including executive and general
administrative expenses so incurred, whether in the State in which the
permanent establishment is situated or elsewhere. Nothing in this paragraph
shall require a Contracting State to allow the deduction of any expenditure
which, by reason of its nature, is not generally allowed as a deduction
under the taxation laws of that State.
4. No business profits shall be attributed to a permanent establishment of a
resident of a Contracting State by reason of the use thereof for either the
mere purchase of goods or merchandise or the mere provision of executive,
managerial or administrative facilities or services for such resident.
5. For the purposes of the preceding paragraphs, the business profits to be
attributed to a permanent establishment shall be determined by the same
method year by year unless there is good and sufficient reason to the
contrary.
6. Where business profits include items of income which are dealt with
separately in other Articles of this Convention, then the provisions of
those Articles shall not be affected by the provisions of this Article.
7. For the purposes of the Convention, the business profits attributable to
a permanent establishment shall include only those profits derived from the
assets or activities of the permanent establishment.
====================
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