IT-468R "Management or Administration Fees Paid to Non-residents" (Archived) 29 December 1999

5. ...[T]he term "management or administration" generally includes the functions of planning, direction, control, co-ordination, systems or other functions at a managerial level. These functions may involve services for various departments of a business such as accounting, financial, legal, electronic data processing, employee relations, management consultation, labour negotiations, taxation, etc., relating to the management or administration. ...

6. ...Amounts paid for services actually performed, which may casually be described as management fees but in substance are for something else which can be identified, will not be subject to non-resident tax under paragraph 212(1)(a) nor will they be excluded from it by subsection 212(4).

The portion of a management or administration fee paid to a non-resident affiliate that is in excess of a reasonable amount may be treated as a deemed dividend.

RC is prepared to accept an allocation of the costs, direct and indirect, reasonably attributable to providing the relevant services to the Canadian taxpayer. Mark-ups or profit elements are appropriate only in certain circumstances.

Where the treaty does not contain a specific article on management or administration fees, such fees paid to the non-resident will, to the extent they are reasonable, be considered to be covered by the business profits article.

8. The Department considers that the term "a specific expense"...applies to a particular expense item or a portion thereof, a sum of several expense items or a portion of a composite of various distinct expenses such as overhead expense including rent, power, heat, salaries, fringe benefits and other business expenses. A specific expense does not include depreciation, capital costs, reserves or unvouchered amounts. A specific expense is net, after all applicable credits or refunds have been deducted, and is without any mark-up or profit element to the non-resident.

9. ...a service performed by a non-resident would not be considered beneficial to the payer if it was a duplication of services already provided by the payer's own personnel.

10. ...Where an amount paid or credited to a non-resident is based on an allocation or distribution of certain charges or costs among various departments, branches or subsidiary corporations (including the Canadian payer), it is important not only that the expenses themselves are reasonable but that the method or basis of allocation or distribution is appropriate to the Canadian payer and reasonable in the circumstances.