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Condition 2 - Does the CFC have a permanent establishment in its country of residence?

Last updated 4 December 2006

The CFC must carry on business through a permanent establishment in its country of residence for the whole of a statutory accounting period in which it is in existence.

What is a permanent establishment?

The definition of permanent establishment is contained in section 6 of the Act. Broadly, the term includes a place at or through which normal business activities are carried on. However, it specifically excludes a place where a person:

  • is engaged in business dealings through a commission agent or broker who is acting in the ordinary course of business and receiving customary rates of remuneration
  • is carrying on business through an agent who does not have or does not usually exercise a general authority to negotiate or conclude contracts or to fill orders from stock situated in the country
  • maintains the place solely for the purpose of purchasing goods or merchandise.

Partnership with a permanent establishment

Even if the CFC did not carry on business at or through a permanent establishment, the CFC will satisfy this condition if any partnership in which it is a member carried on business at or through a permanent establishment in the country of residence of the CFC.

Did the CFC directly or indirectly through a partnership carry on business through a permanent establishment in its country of residence?

Yes

Read on.

No

The CFC has failed the active income test. Go straight to part 3.

QC18000