Client started working as a Consultant in the US at the end of the tax year.
Spent < 60 days in the US.
Client files Canadian Taxes. So, no matter what he has to report the income on the
The question is does this income get taxed for Canada or the U.S?
Need to consider Permanent Establishment (PE). He does not have a space at the US workplace specifically for him.
According to the IRS definition of Permanent Establishment, he doesn't really have PE.
So, that means he shouldn't have to pay U.S. Tax.
This doesn't seem right since the revenue is generated in the US and it seems reasonable that the income should be attributed to the U.S.
Even if the client doesn't pay U.S. tax he still has to file a tax return to enact the Treaty.
I found this link and think it applies:
I really do believe that even though technically he does not meet the formula for PE per the IRS tests, that the work he does in the US is deemed PE.
I think the risk here is that you file a US tax return and pay tax on the US sourced revenue to the US. Canada could then argue that you do not have any PE in the US. But we could argue that you in fact do - that you do indeed work from the space.
"Explanation of What Creates a Permanent Establishment (PE)Any “business” activity carried out in a country which results in “revenue” being generated (which can either be revenue generated directly in the country or where the activity in the country contributes to the “group” entity’s revenue), is likely to be deemed (by local authorities) as having created a “PE”. What this means is that the local country tax authorities will assess corporate tax on a “deemed revenue” arising in-country. In most countries in order to “recognize” a PE, it needs to be formally registered under some corporate identity, typically a branch, representative office, or a subsidiary entity.
PE determination is notoriously a “grey” area, but some “physical” tests are commonly used by advisors and tax authorities for determining whether a PE, on balance, exists. While such tests do vary by country, generally the following are useful as indicators of a PE.
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