Permanent Establishment

Based on Bulletin B-090, a server may constitute a fixed place of business if the server is at the non-resident’s disposal and the server’s functions, on their own, are an essential and significant part of the business activity of the enterprise as a whole (being, the questioner suggested, those that are typically related to a sale or a supply such as conclusion of contracts, processing of payments and delivery of the product, i.e., factors similar to those set out in P-051R2).

The server plays a more limited role in cryptocurrency mining – solving algorithms. Under what circumstances, if any, would CRA consider servers in Canada through which mining is conducted to be a permanent establishment? CRA responded:

In the context of electronic commerce, a server may constitute a fixed place of business of a non-resident person if it is at the disposal of the person and its degree of permanence at the location is of a sufficient period of time to be considered fixed. To be a permanent establishment the non-resident person must make supplies through that fixed place of business – meaning the activities carried out by the non-resident server must, on their own, be an essential and significant part of the business activity of the non-resident person as a whole. …

The CRA currently has a couple of ruling requests that involve cryptocurrency mining, and is currently reviewing whether a non-resident miner with servers in Canada would be considered to have a permanent establishment in Canada by virtue of the mining activities that are carried on through those servers.

Meaning of fixed place of business

…The fact that space at the disposal of a particular person is at the place of business of another person does not preclude the possibility that that space may be considered to be a place of business of the particular person … [f]or instance … space at the disposal of a non-resident at its client’s premises that is necessary for the non-resident to perform the service that it has agreed to supply to the client in the ordinary course of its business. …

Space at the disposal of a person can also exist at the location of equipment or machinery that is at the disposal of the person. …

The place of business must be “fixed” in that it must be established at a particular location with a certain degree of continuity and permanency. …

[I]t is not necessary that the equipment be affixed to real property to be considered fixed. Rather, the equipment must merely remain at the place of business for a sufficient period of time to be considered fixed. …

There must be control at the place of business. …

Control can … exist at a place of business where employees are not required to be present in order for important operational decisions to be made, such as … where operational activities … are carried out through automated equipment at the disposal of the business. …

The presence of personnel … is not required … if no personnel are required at that location to operate the equipment … .

[A] place where isolated activities occur would not qualify as a fixed place of business.

Meaning of “through which the particular person makes supplies”

The phrase “through which the particular person makes supplies” requires that the activity at the fixed place of business of a person be an essential and significant part of the particular overall business activity of the person. There must be a large degree of involvement through the fixed place of business in making or facilitating supplies by the person. …

The presence of any of these factors is usually enough to indicate that supplies are being made through a fixed place of business:

• there is authority at the fixed place of business to enter into contracts or accept purchase orders for the provision of supplies to other persons and that authority is regularly exercised;
• the tangible personal property that is being supplied is physically manufactured or produced at the fixed place of business;
• if the supply is a service, the service is performed at the fixed place of business; or,
• the service of maintaining equipment supplied by the non-resident person, is performed at the fixed place of business (e.g., an authorized factory repair outlet). …

A fixed place of business of a particular person that is used solely for the purpose of carrying on activities that are of a preparatory or auxiliary nature in relation to the particular overall business activity of the person does not constitute a fixed place of business of the person through which the person makes supplies.

Fixed place of business of another person

It must also be established that the dependent agent is a person through whom the particular person is making supplies. This does not necessarily require that the dependent agent must have the authority to conclude contracts on behalf of the particular person.

Electronic commerce

As is the case with any automated equipment, a server that is at the disposal of a non-resident person can qualify as a permanent establishment of the non-resident person for GST/HST purposes, even if no personnel are required at its location to operate it. However, the functions carried out by the non-resident person through the server must, on their own, be an essential and significant part of the business activity of the non-resident as a whole.

A U.S. company would not have a permanent establishment in Canada by virtue only of subcontracting with a Canadian affiliate for the Canadian affiliate to assist the U.S. company in its call centre activities by routing calls to Canada.