Principal Issues: 1. Is an organization residing in France taxable in Canada in a particular situation?
2. Are consultant fees paid to non-resident consultants (that are not employees) by an organization residing in France taxable in Canada?
3. Is employment income received by the staff of the organization residing in France for the services provided in Canada taxable in Canada?
Position: 1. In the particular situation, no.
2. It depends on the Tax Convention between Canada and the country of residence of the consultants. If the country is France, it would appear that in the particular situation, the consultant fees would not be taxable in Canada. However, except where a waiver of withholding is issued, the payer would have to withhold 15% of the amount paid pursuant to section 105 of the Regulations. If the non-resident is not taxable in Canada because of the Tax Convention, he will obtain a refund of the tax withheld when he produces a Canadian tax return.
3. If the employee is a resident of France, it will depend on whether paragraph 2 of article XV of the Tax Convention applies. If it applies, the employment income will be taxed only in France. However, except where a waiver of withholding is obtained, the withholding and remitting will be the same as for a resident employee. If the non-resident is not taxable in Canada because of the Tax Convention, he will obtain a refund of the income tax withheld when he produces a Canadian tax return.
Reasons: 1. There is no permanent establishment in Canada. Article VII of the Tax Convention between Canada and France provides that the profits of an enterprise of France shall be taxable only in France unless the enterprise carries on business in Canada through a permanent establishment situated in Canada.
2. If the consultant is resident in France, article XIV of the Tax Convention between Canada and France provides that income derived by a resident of France in respect of professional services or other independant activities of a similar character shall be taxable only in France unless he has a fixed base regularly available to him in Canada for the purpose of performing his activities. In the particular situation, the consultants did not have a fixed base regularly available to them. Section 105 of the Income Tax Regulations.
3. Paragraph 2 of article XV of the Tax Convention between Canada and France provides that if the conditions of that paragraph are met, the remuneration derived by a resident of France in respect of an employment exercised in Canada shall be taxable only in France. Paragraph 153(1)(a) of the Income Tax Act and section 102 of the Income Tax Regulations.
