Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether the safe harbour rule in Article 15(2) of the Canada-Germany Treaty would apply under the circumstances?
Position: No.
Reasons: The conditions in Article 15(2) would not be satisfied where a German-resident employee is present in Canada for periods that exceed in the aggregate 183 days in any twelve month period commencing or ending in the particular fiscal year.
XXXXXXXXXX
2012-046454
Robert Demeter
(613) 948-5274
February 3, 2014
Dear XXXXXXXXXX:
Re: Paragraph 2 of Article 15 of the Canada-Germany Income Tax Agreement
183-day safe harbour rule
We are writing in response to your email of October 2, 2012, in which you described a hypothetical situation involving an individual resident in Germany for purposes of the Canada-Germany Income Tax Agreement ("Treaty"). More specifically, throughout the years 20X1 and 20X2, the individual was employed in Canada by a German employer that was not resident in Canada and did not carry on business in Canada through a permanent establishment in Canada.
The individual's first day of presence in Canada was on April 1, 20X1. In addition, the employee was present in Canada during 20X1 and 20X2 as follows:
a) for periods not exceeding in the aggregate 183 days between April 1, 20X1, and March 31, 20X2; and
b) for periods in excess of 183 days in the aggregate between August 1, 20X1, and July 31, 20X2.
In consideration of paragraph 2 of Article 15 of the Treaty, you have asked for our comments as to whether all or any portion of the remuneration derived by the individual in Canada in respect of the above-noted employment would be taxable in Canada during the years 20X1 and 20X2.
Our Comments
This technical interpretation provides general comments about the provisions of the Income Tax Act ("Act") and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
In general, subject to a tax treaty, a non-resident individual who is employed in Canada is taxable in Canada under subsection 2(3) on their Canadian-source employment income, as computed under section 115 of the Act. Further, paragraph 1 of Article 15 of the Treaty confirms that income from employment that is derived by a resident of Germany in respect of employment exercised in the Canada may be taxed in Canada.
However, as you have noted, paragraph 2 of Article 15 of the Treaty provides a "safe harbour" exception in respect of remuneration derived by a resident of Germany from employment exercised in Canada where:
(a) the employee is present in Canada for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year;
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of Canada; and
(c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in Canada.
Where all of these conditions are satisfied, remuneration derived by the resident of Germany in respect of employment exercised in Canada shall only be taxable in Germany.
Whether or not these conditions are satisfied in any particular situation is a question of fact that can only be determined after a review of the actual employment performed in a given fiscal year by the employee, and after a determination is made regarding the existence of a permanent establishment or fixed base in Canada.
However, in the circumstances that you have described, the individual was present in Canada for periods exceeding in the aggregate 183 days during the twelve month period from August 1, 20X1 to July 31, 20X2; a twelve month period that commenced in 20X1 and ended in 20X2. As such, the first condition within paragraph 2 of Article 15 would not be satisfied in respect of either 20X1 or 20X2. Therefore, we are of the view that the entire amount of Canadian-source employment income that was derived by the resident of Germany in 20X1 and 20X2 would be taxable in Canada pursuant to paragraph 1 of Article 15 of the Treaty.
We trust that our comments will be of assistance.
Yours truly,
Robert Demeter, CPA, CGA
Manager
For Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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