Independent agent and permanent establishment — international tax: is this a do-it-yourself job?
Some of it, yes — and we will say so on the call if that is the honest answer. The parts that are worth paying for are the ones where a missed election, a missed deadline or an unverified threshold costs more than the fee: the treaty tests a fixed place of business and a dependent agent separately, with carve-outs for genuinely preparatory activity.
What if I have already filed and got it wrong?
That is a common starting point. We re-derive the position, identify whether an amendment or a disclosure route is the right vehicle, and tell you which one preserves the relief that is still available. The order matters more than the speed.
How long will it take?
It depends on the documents rather than on us. Once the pack is complete most filings turn around inside a fortnight; anything that needs a certificate from a tax authority runs on that authority's timetable, which we tell you at the start rather than at the end.
Does hiring a salesperson in Canada create a permanent establishment?
It can, and the question turns on what that person is authorised to do and what they habitually do in practice. A treaty tests two things separately: whether there is a fixed place of business, and whether there is a dependent agent. An employee who takes orders back to head office for genuine approval sits differently from one who plays the principal role leading to the conclusion of contracts that head office then signs as a formality. Because the test is behavioural rather than contractual, the answer can change as the role matures. Review it when the role changes, not only when it is first created.
Our sales rep works from home in Canada, so is their home our office?
It can amount to a fixed place of business at the employer's disposal, which is the test, and the words used about it internally matter less than the facts. Is the space used regularly for the employer's business? Does the employer require it, pay for it, list it, receive post there or expect clients to be met there? A person who occasionally answers email at the kitchen table is not in the same position as one who runs a territory from a dedicated room the employer funds. The carve-out for genuinely preparatory or auxiliary activity is narrow and does not cover the core of what the business sells.
What makes an agent independent rather than dependent?
Independence is about substance, in two directions. Legal independence looks at how far the agent is subject to detailed instruction and control, who bears the risk of the activity, and whether the agent organises its own work. Economic independence looks at whether the agent acts for others or is in practice a single-principal operation. An agent acting in the ordinary course of its own business, for several principals, on its own commercial risk, is in a very different position from one whose entire revenue and direction come from one foreign company. Written agreements matter, but conduct is what decides the question.
Do we have to file a Canadian return if no tax is owed?
Once the threshold is crossed and a permanent establishment exists, a return is required whether or not tax turns out to be payable on the profits attributed to it. People find that counterintuitive, because the attribution exercise may produce a modest figure, or none at all, and the filing obligation is unaffected either way. The return is also where the position is stated: what the presence consists of, what functions it performs, and what profit is attributable to it. Leaving it unfiled on the basis that nothing was owed removes the one document that would have explained the position.
Is a warehouse or a showroom enough to create a permanent establishment?
The treaty carves out activity that is genuinely preparatory or auxiliary, and storage or display can fall within that carve-out. It is not a label, though; it has to describe what actually happens at the site. A facility that only holds goods is one thing. The same building where orders are taken, stock is allocated to named customers, returns are processed and staff deal directly with buyers is doing something much closer to the business itself. Fragmenting one operation across several sites so that each looks auxiliary on its own is exactly the arrangement the rules are written to catch.
Our agent negotiates everything but head office signs, so does that help?
Less than most people assume. The dependent agent test reaches a person who habitually plays the principal role leading to the conclusion of contracts, so a signature applied elsewhere as a formality does not by itself keep the threshold from being crossed. What matters is where the commercial substance of the bargain is settled: who sets the price, who agrees the terms, and whether head office has ever meaningfully declined to sign. If the honest answer is that approval has never been withheld, the signing step is unlikely to carry the weight being placed on it.
Who counts as an independent agent, and why does it decide the permanent-establishment question?
An agent who acts for you in the ordinary course of its own business, for several principals, at its own risk, is generally independent — and an independent agent does not by itself give you a permanent establishment in that country. An agent who works only for you, on your instructions, habitually concluding contracts in your name, is a dependent one, and that is the classic way an international tax exposure appears in a country nobody intended to file in. The tests come from the permanent-establishment article of the treaty in force and from domestic law, applied to what the agent actually does rather than to the label on the contract.
What is OECD Pillar One?
The part of the international agreement that reallocates a share of taxing rights over the very largest and most profitable groups to the jurisdictions where their customers and users are, regardless of physical presence — plus a simplified approach to routine marketing and distribution returns. It is aimed at the digitalised economy problem that physical-presence rules could not reach, and its implementation is still moving, which is why we read the current instrument rather than the original blueprint. See BEPS and Pillar Two.
