10 September 2004 External T.I. 2004-0077361E5 - Loans of Employees Between Corporations

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: Who is the employer in a particular corporate employee loaning arrangement? When should an employee's salary be considered to be "borne by" a Canadian employer?

Position: Insufficient facts to resolve these issues. Should be dealt with by way of advance income tax ruling.

Reasons: Insufficient facts. Requires review of employment contracts and contracts between corporations.

XXXXXXXXXX 	2004-007736
		Eliza Erskine
September 10, 2004

Dear XXXXXXXXXX:

Re: Individuals Performing Services in Canada

This is in reply to your letter of May 17, 2004, requesting an interpretation with respect to the above-noted subject matter. In particular, you requested our comments with respect to a particular corporate structure and employees being loaned between a US subsidiary and a Canadian parent company.

Our Comments

The circumstances outlined in your letter appear to relate to a specific fact situation. We note that written confirmation of the tax implications arising out of a particular fact situation are given by this Directorate only where the circumstances or events are the subject matter of an advance income tax ruling request. Please consult the current version of Information Circular IC 70-6, Advance Income Tax Rulings, which can be found on the Canada Revenue Agency website at www.cra-arc.gc.ca for information regarding obtaining an advance income tax ruling.

We have the following general comments with respect to your questions:

1. We have not considered the issue of "old" economy versus "new" economy corporate structures (as you term them in your letter), either in terms of how to determine employment relationships or in terms of the application of Article 15 of our tax treaties. Generally, any days performing the duties of an employment in Canada are regarded as work days in Canada for purposes of the Income Tax Act (the "Act") and Canada's tax treaties regardless of who is the employer or who the services are provided to.

2. We are able to provide only minimal comments with respect to your questions 2, 3 and 4. The nature and effect of payments between corporations with respect to services rendered by employees can generally only be determined having regard to all of the facts of a situation and, in particular, having regard to the particular terms of the contracts between the corporations with respect to those employees. You have not provided us with the relevant contracts, and we would generally not undertake such a review except within the scope of an advance income tax ruling request. The determination of who is an employee and who is an employer in a particular situation also depends on all of the facts and circumstances of that situation. Our approach to this determination would be the same in the scenario described in your letter as in any other case. With respect to how Article 15 of a tax treaty might apply, we note that it may be helpful to you to review the Commentary to the OECD Model Tax Convention for Article 15. Paragraph 8 of such Commentary is of particular relevance to scenarios similar to what you have described.

We trust that these comments, although limited by the nature of your questions and the information provided, will be of assistance to you.

Yours truly,

Jim Wilson,
Manager
for Director
International and Trusts Division
Income Tax Rulings Directorate