—but it can apply across industries, just to be clear.
I'm going to simplify, as much as I can, international tax and try to translate from tax to English, but please excuse me if I don't get fully out of tax.
What tax treaties do is to really allocate taxing rights between a residence country and a source country. For a source country, generally, if you have a permanent establishment, then you're carrying on business in that country, and that country has a right to tax, really the primary right to tax. The residence country would then give a tax credit to avoid double taxation. That's the normal process.
So right now, if Canada is both a residence and a source country by virtue of Canadian resources being sold around the world, Canada is taxing 100% of the profits and the foreign countries where those resources might be consumed are not taxing the profits from that business. If in turn the Canadian company does have a permanent establishment in those foreign countries, then those foreign countries would have the primary right to tax those profits—any income attributable to that permanent establishment. Canada would then lose the tax revenues, because instead of taxing 100% of the profits, Canada would be giving a foreign tax credit and ceding some of that tax to the foreign country.
The articles you just referred to relate principally to what we call an “agency permanent establishment”. Under the current treaties, that occurs if contracts are concluded in a particular jurisdiction. In my resource example, if the contract to sell the resources is concluded out of Canada, then only Canada is taxing those profits. If the contracts are concluded in the foreign jurisdiction or if somebody in the foreign jurisdiction is concluding those contracts on behalf of the Canadian company, then the foreign country would have the ability to tax some of the profits.
These changes take away that bright-line test of whether that agent in the local country is concluding contracts, and it changes it to ask in general—there are a few options—whether the person in that foreign country is conducting activities that assist in or facilitate or generally result in the conclusion of contracts, and if so, that's enough to have a permanent establishment.
It's very ambiguous what level of activity is needed in that foreign jurisdiction in order to create a PE, so the concern again is that if you had somebody in a foreign jurisdiction helping to find a purchaser for your products, depending on their level of activity and their involvement and whether it leads to contracts, that could be enough for the foreign jurisdiction to say that that Canadian company has a permanent establishment in their country and so they're going to tax the profits. Then, if Canada also taxes the profits, we either have double taxation or we go potentially through binding arbitration or a mutual agreement process to determine how much profit should be allocated to the foreign country, and then those foreign taxes take away from the Canadian revenue because we provide a credit for those taxes.