Principal Issues: (1) Whether Greece's Special Solidarity Contribution (SSC) paid on the Director's Fees is an "income or profits tax" for purposes of section 126. (2) Whether the Director's Fees are considered to be from a source in Greece for purposes of applying section 126 to SSC if the board of directors' meetings occur virtually while the taxpayer is physically present in Canada.
Position: (1) Yes, in this case, the SSC is an "income or profits tax" for purposes of section 126; however, we do not comment on whether SSC computed by reference to imputed income, which is computed by reference to the acquisition of assets in Greece, is an income or profits tax. (2) Article 23 of the Treaty deems the Director's Fees to arise from a source in Greece for purposes of providing a foreign tax credit.
Reasons: (1) The scheme of the SSC was comparable to the scheme of the income tax imposed under the Income Tax Act (Canada). The SSC was compulsory, imposed by the enactment of legislation by the Greek parliament, enforceable by such legislation, and enacted to generate revenue for the Greek state. The base on which the SSC is imposed is the same as the base on which the Greek income tax is imposed. Such tax base is based on "net" income, after deduction for allowable expenditures. (2) The SSC is a covered tax under Article 2 of the Treaty as it is a tax on income. Furthermore, Greek tax authorities have also acknowledged that the SSC is a covered tax under double tax agreements entered into by Greece. Therefore, the provisions of Article 23 of the Treaty applies in providing a foreign tax credit in Canada and, pursuant to Article 23(3), the Director's Fees, which can be taxed by Greece under Article 16, are deemed to arise from sources in Greece. However, we do not comment on whether SSC computed by reference to imputed income is a covered tax under Article 2.
