10 February 1994 9334031 - EMPLOYEES OF INTERNATIONAL ORGANIZATIONS

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 Department.

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

		February 10, 1994

	MEMO FOR FILE	Rulings Directorate
		Jim Wilson
		957-8953

		933403

Employees of International Organizations

Our Directorate has been receiving various enquiries concerning the Canadian tax treatment of employees of international organizations. In light of recent amendments to the Income Tax Act ("Act") under Bill C-92 affecting such employees, the following summary has been prepared.

Subsection 126(3) & Subparagraph 110(1)(f)(iii) of the Act

Subsection 126(3) of the Act operates similar to the foreign tax credit provisions in that a Canadian resident otherwise taxable on his world income, including his remuneration received as an employee of an international organization, would receive a tax credit against his federal taxes payable in respect of the internal levy (see comments below under "Internal Levy") withheld by the international organization. Prior to Bill C-92, subsection 126(3) of the Act was structured in a manner that first limited the tax credit to the Canadian federal taxes attributable to that remuneration and then a further limitation was in place that ensured that the credit did not exceed the actual internal levy. This second limitation did not apply to employees of the United Nations or employees of a specialized agency that is brought into relationship with the United Nations in accordance with Article 63 of the Charter of the United Nations (see comments below under "Special Agencies of the United Nations"). In other words, employees of the United Nations and its agencies were entitled to a tax credit even if they were not subject to an internal levy.

Pursuant to the amendments under Bill C-92, effective as of the 1991 taxation year, subsection 126(3) of the Act no longer applies to employees of a "prescribed international organization". As of yet no draft regulations have been prepared defining "prescribed international organization".

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Employees of a "prescribed international organization" are now entitled to a deduction in computing taxable income equal to their income from employment with that organization pursuant to subparagraph 110(1)(f)(iii). It is our understanding that the change was mainly to resolve provincial tax problems (i.e. a credit under subsection 126(3) did not reduce the federal taxes payable on which provincial taxes are computed, but a deduction from taxable income ensures no provincial tax will be assessed on that employment income).

Subsection 126(3) of the Act continues to operate in the same manner for those employees of international organizations that are not "prescribed international organizations". The provision is now less complicated because there is no special treatment within the computation of the credit for those employees of the United nations or its specialized agencies. In other words, a tax credit will only arise when the employee is subject to an internal levy.

The term "international organization", for purposes of subsection 126(3) of the Act, has the meaning established under section 2 of the Foreign Missions and International Organizations Act ("FMIO Act") (see Jim Wilson for a copy of this particular Act). Section 2 of the FMIO Act is worded as follows:

"international organization" means any intergovernmental organization of which two or more states are members;

Note: The above definition of "international organization" is much broader than the definition of that term given under section 3 of the former Privileges and Immunities (International Organizations) Act. The latter definition was applicable for purposes of subsection 126(3) of the Act for the 1990 and prior taxation years.

Internal Levy

Employees of international organizations may often be exempt from tax in the country in which the organization is located. In many cases the international organization will assess and withhold their own internal levy. This internal levy is effectively used to defray the expenses of the organization. Such an internal levy does not qualify as a non-business income tax and subsection 126(1) is not applicable. It must be emphasized, however, that not all international organizations withhold an internal levy (e.g. the O.E.C.D.) and subsection 126(3) of the Act would be of no benefit.

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Foreign Missions and International Organizations Act

The FMIO Act has replaced the "Privileges and Immunities (International Organizations) Act". The FMIO Act, among other things, exempts the organizations described therein from Canadian tax and exempts certain of its "officials" from Canadian tax on the remuneration earned therefrom. The exemption from Canadian tax to certain "officials" does not apply to Canadian citizens residing or ordinarily resident in Canada. The term "officials" does not include all employees of the organization but instead those persons named and agreed on between the organization in question and its member states and designated as such by the Governor in Council. In summary, the tax exemption granted under the FMIO Act to officials of an international organization will generally only apply to foreigners (i.e. non-Canadians citizens) coming to Canada to work for an international organization based in Canada (eg. ICAO).

As mentioned above, the FMIO Act will not apply to a Canadian resident working outside Canada for an international organization unless the individual is an official of the organization and is not a Canadian citizen. The tax status of such Canadian residents employed outside Canada by an international organization must then be determined by reference to subsection 126(3) and subparagraph 110(1)(f)(iii) of the Income Tax Act. Also, the application of the Dependent Services Article in a particular income tax convention (i.e. the country in which the international organization is located and in which the employee renders his services) would have to be considered. For example, if the tie-breaker rules applied in a particular convention to render the individual a resident of the other state for purposes of the convention, Canada would likely be denied the right to tax remuneration received in respect of employment exercised in the other state for that particular international organization. The Diplomatic and Consular Officials Article in most income tax conventions, specifically the provision pertaining to international organizations and its officials, will not apply to render the convention not applicable to that official where the official is liable for tax in one of the two states as a resident thereof. Accordingly, the Dependants Services Article will generally apply where we are dealing with a Canadian resident working for an international organization located in a treaty country.

Since the FMIO Act may only exempt "remuneration" received by officials, any question relating to the taxability of pensions received from the United Nations or other international organizations will not be affected by this statute. Questions pertaining to pensions from international organizations, which do arise frequently in our section, must be dealt with by reference to the Income Tax Act and the relevant income tax convention (e.g. United Nation pensions are likely arising in the United States).

Certain United Nations agencies (e.g. IBRD, IDA, IMF, IFC and MIGA) are not covered by the FMIO Act but instead are covered by the Bretton Woods and Related Agreements Act. See Jim Wilson for copies of the Bretton Woods and Related Agreements Act should the need arise.

Special Agencies of the United Nations

The "United Nations" would include its Regional Commissions and other United Nations bodies. Article 63 of the Charter reads as follows:

1. The Economic and Social Council may enter into agreements with any of the agencies referred to in Article 57, defining the terms on which the agency concerned shall be brought into relationship with the United Nations. Such agreements shall be subject to approval by the General Assembly.

2. It may co-ordinate the activities of the specialized agencies through consultation with and recommendations to such agencies and through recommendations to the General Assembly and to the Members of the United Nations.

Article 57 of the Charter of the United Nations reads as follows:

1. The various specialized agencies, established by intergovernmental agreement and having wide international responsibilities, as defined in their basic instruments, in economic, social, cultural, educational, health, and related fields, shall be brought into relationship with the United Nations in accordance with the provisions of Article 63.

2. Such agencies thus brought into relationship with the United Nations are hereinafter referred to as specialized agencies.

The Charter of the United Nations has a listing (including descriptions, etc.) of "Specialized Agencies Within the UN System". The following is a list of these agencies:

Food and Agriculture Organization - FAO
General Agreement on Tariffs and Trade - GATT
International Atomic Energy Agency - IAEA
International Bank for Reconstruction & Development- IBRD (World Bank)
International Civil Aviation Organization - ICAO
International Development Association - IDA
International Finance Corporation - IFC
International Fund for Agricultural Development - IFAD
International Labour Organization - ILO
International Maritime Organization - IMO
International Monetary Fund - IMF
International Telecommunications Union - ITU
United Nations Educational, Scientific & Cultural Organization- UNESCO
(included are International Institute for Educational Planning, International Bureau of Education and Intergovernmental Committee for Physical Education and Sport)
United Nations Industrial Development Organization - UNIDO
Universal Postal Union - UPU
World Health Organization - WHO
World Intellectual Property Organization - WIPO
World Meteorological Organization - WMO

Note:The above list was prepared by the Provincial and International Relations Division on December 7, 1992. The Department should obtain a revised listing of "Specialized Agencies Within the UN System" on a periodic basis as new organizations from time to time will be brought into relationship with the United Nations in accordance with Article 63 of the Charter of the United Nations.

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