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The Canada Revenue Agency (CRA) has indicated that it will not be extending its guidance concerning the impact of travel restrictions on corporate residency determinations. In 2020, the CRA issued guidance concerning international income tax issues in light of COVID-19 travel restrictions. The guidance indicated that, as of March 16, 2020, when determining cases of potential dual corporate residency, the CRA will not consider a corporation to have its place of effective management in Canada solely for the reason that a director of a corporation must participate in board meetings from Canada because of travel restrictions. This guidance applies to corporations covered by an income tax treaty that looks to the corporation's place of effective management as a residency tiebreaker.
The application of this guidance expired on September 30, 2020, and has not been extended. At the CRA Roundtable on May 5, 2021, held as part of the 2021 International Fiscal Association (IFA) Canada Conference, the CRA stated that it does not plan to extend the application of this guidance, and it has indicated that corporate residency based on central management and control should be determined on a case-by-case basis.
The CRA also commented on recent supplemental guidance issued April 1, 2021 concerning permanent establishment. It reiterated its position that where, due to travel restrictions, an employee is working from home in Canada for a U.S. employer, the application of the relevant treaty provisions to their situation will generally not result in the finding of a permanent establishment for the employer under either the fixed place of business or agency tests for permanent establishment.
As a result of the CRA's most recent statements, it is clear that determinations of both corporate residency and permanent establishment will continue to be made based on an analysis of all the circumstances, including COVID-19 travel restrictions.
Luckily there is technology that can help. Blue J's Permanent Establishment tool uses machine learning to determine the likelihood that a U.S. resident will be found to have a permanent establishment in Canada, pursuant to the Canada-U.S. Tax Treaty, while the Central Management and Control predictor analyzes all the relevant factors to determine whether a corporation may be resident in Canada.
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