17 March 1994 External T.I. 9402205 - OVERSEAS EMPLOYMENT CREDIT-EMPLOYER/EMPLOYEE(7970-7)

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.

DOCUMENT TYPE:			file # 940220

Opinion

ACCESS TO INFORMATION:

This Correspondence CAN be Released Under ATIP

Principal Issues:

Whether a company is carrying on business outside Canada.

Position TAKEN:

Question of fact situation. Such a determination can only be made after examining all the facts.

Reasons FOR POSITION TAKEN:

General response to a proposed transaction.

LEGAL:

Files: #7-4718 & #902367

FINANCE OPINION:

N/A

JURISPRUDENCE:

N/A

RCT PUBLICATIONS:

IT-497R2

HAA NUMBER:

7970-7

		940220
XXXXXXXXXX	G. Middleton

Attention: XXXXXXXXXX

March 17, 1994

Dear Sirs:

This is in reply to your letter of January 26, 1994 requesting our opinion with respect to the application of the overseas employment tax credit ("OETC") under section 122.3 of the Act. Unless as otherwise stated all references to statute are to the Income Tax Act S.C. 1970-71-72, c.63 as amended consolidated to June 10, 1993 (the "Act").

The situation you described involves two public companies ("company A" and "company B") that are resident in Canada. Both companies are involved in the exploration of minerals. The two companies are under common management. Also, company B owns 17% of the outstanding shares of Company A. All employees are registered on the payroll records of company A, although some of these employees perform duties for both companies. The two companies have a cost sharing agreement to allocate such costs appropriately.

Company B will undertake to carry on exploration activities overseas. One of the employees of company A will be sent to work on the project. It is the intention of the two companies to draw up an agreement whereby company A will be contracted by company B to provide the services of this employee. The contract is to be made in Canada as both parties are resident in Canada. The employee will, in effect, be performing his duties of employment outside Canada in connection with a contract under which company A (a "specified employer") will carry on business with respect to the exploration of resources.

Apparently, it would be a formidable task to transfer the employee onto company B's payroll as this would create complications with respect to company A's pension, group insurance and other employee plans.

You requested our opinion on whether company A could be considered to be carrying on business outside Canada and whether the employee of company A could qualify for the OETC.

As indicated in paragraph 21 of Information Circular 70-6R2, when a requested interpretation relates to a contemplated transaction, a taxpayer should request an advance income tax ruling rather than an opinion. Although we cannot provide you with a specific answer to your questions, we are prepared to offer the following general comments which may be of assistance to you.

It is always a question of fact whether or not a company is carrying on business outside Canada. The contract described above between company A and company B is not, in and by itself, indicative that company A would be carrying on business outside Canada. Such a determination can only be made after a complete analysis of the facts.

With respect to the second part of your question on whether the employee would qualify for an OETC, the answer to this would of course depend on whether his specified employer, company A, would be carrying on business outside Canada and whether the employee could satisfy the other requirements under section 122.3 of the Act.

We also note that it would be a question of fact whether a particular individual is an employee of company A or company B and the fact that company A pays him is not determinative in and by itself.

We trust that our comments will be of assistance to you.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch