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 a foreign embassy is required to withhold and remit payroll deductions for locally engaged Canadian resident employees performing employment services for the foreign embassy in Canada.
Position: Yes.
Reasons: There are no provisions in the Vienna Convention on Diplomatic Relations that exempt a foreign embassy from Canadian domestic payroll withholding and remitting obligations in respect of employment income earned by its Canadian resident employees. Our position is supported by paragraph 2 of Article 23 and paragraph 3 of Article 33 of such Vienna Convention.
XXXXXXXXXX 2008-029894
January 25, 2010
Dear XXXXXXXXXX :
Obligation by a Foreign Embassy to Withhold and Remit
Payroll Deductions for Locally Engaged Canadian Resident Employees
This is in response to your email of October 31, 2008 and further to our telephone conversations (Middleton/XXXXXXXXXX ) wherein you asked whether a foreign embassy located in Canada is required to withhold and remit payroll deductions for locally engaged Canadian resident employees who are employed by the foreign embassy to perform services in Canada.
In our view, such a foreign embassy employer is required to withhold and remit payroll deductions on the employment income earned by the locally engaged Canadian resident employees performing services in Canada for the embassy.
In support of our view, we refer you to the following provisions of the "Vienna Convention on Diplomatic Relations" (the "VCDR") which have the force of law in Canada by virtue of paragraph 1 of Article 3 of the "Foreign Missions and International Organizations Act".
Paragraph 2 of Article 23 of the VCDR reads in part: "The exemption from taxation ...... shall not apply to such dues and taxes payable under the law of the receiving State by persons contracting with the sending State or the head of the mission."
Paragraph 3 of Article 33 of the VCDR reads in part: "A diplomatic agent who employs persons........ shall observe the obligations which the social security provisions of the receiving State shall impose upon employers."
These provisions in the VCDR indicate that a foreign embassy (or a diplomatic agent of a foreign embassy), as an employer, is not exempted from Canadian domestic payroll withholding and remitting obligations in respect of employment income earned by its Canadian resident employees.
We trust these comments are of assistance.
Olli Laurikainen
For Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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