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

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    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.

    Last modified: 05 Dec 2006QC 18000