31 October 2003 Internal T.I. 2003-0040887 - Luxembourg - Social Security Tax

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Whether social security contributions made by a resident of Canada to the government of Luxembourg are mandatory and thus eligible for the foreign tax credit in subsection 126(1) for 2003 and previous taxation years?

Position: Yes, but there may be exceptions.

Reasons: Social Security Legislation of Luxembourg

October 31, 2003

Validation Section - IRPPD HEADQUARTERS
25 McArthur Road, 5th Floor Income Tax Rulings
Vanier, Tower C Trusts & International
Ottawa ON Section
Fouad Daaboul

Attention: Ms. Mabe Greenberg (613) 957-2053

2003-004088

Social Security Taxes paid in Luxembourg and Foreign Tax Credit

We are writing in response to your e-mail of September 25, 2003, wherein you ask whether social security contributions made by a resident of Canada to the government of Luxembourg in 2003 or prior taxation years are mandatory and therefore qualify as "income or profits" taxes for the purposes of the definition of "non-business-income tax" in subsection 126(7) of the Income Tax Act (the "Act"), making them eligible for the foreign tax credit in subsection 126(1) of the Act?

Our review of the social security system of Luxembourg leads us to conclude that most contributions are mandatory as employees, employers, self-employed individuals and the state of Luxembourg are all required under the law to contribute to the financing of the social security system. However, we note that some employee contributions are optional. For example, sections 173 - Assurance continuée and 173bis - Assurance facultative of the Code des assurances sociales of Luxembourg deal with voluntary contributions and thus represent exceptions to the general rule of mandatory contributions. To the extent that the social security contributions are mandatory, such contributions would qualify as "income or profits" taxes for the purposes of the definition of "non-business-income tax" in subsection 126(7) of the Act and be eligible for the foreign tax credit in subsection 126(1) of the Act when made in the 2003 and previous taxation years. You may, in your discretion, wish to verify with certain taxpayers claiming a foreign tax credit in respect of such contributions, that the contributions they made were in fact mandatory and not optional.

We trust that our comments are of assistance. Should you wish to discuss our comments further, do not hesitate to call us.

Alain Godin
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch