Determining the Creation of a Permanent Establishment in US

[bobfranklin]

Hi all,

I have done a review of the forums but don't see my specific issue coming up with effect to permanent establishments. I am therefore hoping for some assistance!

Nearly everyone who is asking about whether they've established a PE in the US is a sole proprietor with a single client in the US. I think my situation is different. I'm a Canadian citizen, with no US visa status. I married my wife last year in the US and therefore spent 250 days in the doing wedding prep, etc. I am the 100% owner of a CCPC. The business provides consulting services remotely for a range of clients. Over 2013 only about 3 clients (of approx 20) were US-based, while the rest were based around the world.

Based on the above, I did pass the test of being in the US for over 183 days. However, the % of income that the business generated because of my efforts during my time in the US was only about 35%, given that I use many subcontractors based in Canada, the UK, Australia, etc. I also did not spend substantial time (obviously) working for any single client in 2013.

For this reason, i do not believe I've actually created a PE in the US given that 9a in the treaty states that you have to have been resident for over 183 AND over 50% of the revenue during that period must have been generated in the US.

Could you please confirm if I'm correct? The one clause that I do not fully understand is the following:

[i]5. A person acting in a Contracting State on behalf of a resident of the other Contracting State — other than an agent of an independent status to whom paragraph 7 applies — shall be deemed to be a permanent establishment in the first-mentioned State if such person has, and habitually exercises in that State, an authority to conclude contracts in the name of the resident.
[/i]

Thank you very much for your input.

Bob

[nelsona]

I believe your conclusion is correct.