17 October 2012 External T.I. 2012-0439441E5 - German social security contributions

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 contributions to a German social security arrangement by a German resident that relate to employment income performed in Canada by the German resident are eligible for Canadian tax relief in accordance with paragraph 4 of Article 29 of the Canada-Federal Republic of Germany Tax Treaty. Specifically, whether Article 29(4) of the Treaty applies where no relief is provided by Germany for the contributions due to the fact the related Canadian employment income is exempt from German taxation.

Position: Yes, provided all conditions are met.

Reasons: The determination of whether eligible contributions qualify for tax relief in Germany is analysed in the context of the individual hypothetically being resident and performing the services in Germany.

XXXXXXXXXX
2012-043944
W. Doiron

October 17, 2012

Dear XXXXXXXXXX:

Re: Article 29(4) of the Canada-Federal Republic of Germany Tax Treaty

This letter is in response to your letter wherein you requested whether contributions to a German social security arrangement by a German resident that relate to employment income performed in Canada by the German resident are eligible for Canadian tax relief in accordance with paragraph 4 of Article 29 of the Canada-Federal Republic of Germany Tax Treaty ("Treaty"). Specifically, you are requesting whether Article 29 of the Treaty applies where no relief is provided by Germany for the contributions due to the fact the related Canadian employment income is exempt from German taxation.

Article 29 of the Treaty allows for Canadian tax relief for contributions to a German social security arrangement made by a German-resident individual, who is temporarily present in Canada, by treating the contributions in the same way for tax purposes as Canadian social security contributions (i.e. eligible for a 15% non-refundable tax credit similar to that allowed for CPP contributions) where the following conditions are met:

• The individual was participating in a German social security arrangement on a regular basis for the period ending immediately before the individual became temporarily present in Canada;
• The contributions are attributable to services that the individual performed in Canada and paid by, or on behalf of, the individual during the period of service;
• The remuneration that the individual received for those services is taxable in Canada;
• The total period during which the individual made the contributions is no more than 60 months in aggregate; and
• The eligible contributions are deductible only in the year in which they were made and only to the extent that they would qualify for tax relief in Germany if the individual had been resident and performed the service in Germany.

In your letter, it was your concern that since no actual tax relief is given by Germany in respect of the social security payments that relate to the portion of Canadian employment income exempted from German taxation then there might not be any Canadian tax relief provided under paragraph 4 of Article 29 of the Treaty. The determination of whether the requirement is satisfied, that is that the eligible contributions qualify for tax relief in Germany, is analysed in the context of the individual hypothetically being resident and performing the services in Germany. If the eligible contributions would qualify for tax relief where the individual had been resident and performing services in Germany then paragraph 4 of Article 29 applies.

We trust these comments will be of some assistance.

Yours truly,

Lita Krantz
Assistant Director
International Division/ Division des opérations internationales
International Section III
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch