18 July 2011 External T.I. 2011-0414091E5 - Inter-American Development Bank

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: Would the employment income received by a Canadian citizen resident in Canada from the Inter-American Development Bank be eligible for an exemption pursuant to paragraph 81(1)(a) of the Act?

Position: No

Reasons: Since the individual is a Canadian citizen, resident in Canada, he is not exempt from tax by virtue of an enactment of Parliament, namely the FMIOA. As such, the taxpayer is not eligible for the exemption in paragraph 81(1)(a) of the Act.

XXXXXXXXXX
						2010-041409
						M. Gauthier
						(613) 948-1143
July 18, 2011

Dear XXXXXXXXXX :

Re: Interamerican Development Bank

This is in reply to our phone call of July 15, 2011 in which you asked whether salaries received from the Inter-American Development Bank (the "IDB") would be eligible for an exemption pursuant to paragraph 81(1)(a) of the Income Tax Act (the "Act").

We had previously issued a technical interpretation (2011-041081) which responded to whether a Canadian citizen resident in Canada would be eligible for a deduction pursuant to subparagraph 110(1)(f)(iii) of the Act with respect to salaries received from the IDB.

Facts:

An individual, Mr. X, is a Canadian citizen and is resident in Canada for the purposes of the Act. Mr. X receives employment income from his contract with the IDB.

Question:

Would the employment income received by a Canadian citizen resident in Canada from the IDB be eligible for an exemption pursuant to paragraph 81(1)(a) of the Act?

Our comments:

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of
which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments

Paragraph 81(1)(a) states that a taxpayer shall not include any amount into income that is declared to be exempt from income tax by any other enactment of Parliament other than an amount received or receivable by an individual that is exempt by virtue of a provision contained in a tax convention or agreement with another country that has the force of law in Canada.

IT-397R Amounts Excluded from Income - Statutory Exemptions discusses a number of enactments of Parliament for the purposes of paragraph 81(1)(a), including the Foreign Missions and International Organizations Act (the "FMIOA"). As we will see in the subsequent paragraphs, the privileges and immunities relating to the taxation of salaries from IBD are enforced through the FMIOA; however, the FMIOA also relies on the following documents:

• Agreement Establishing the Inter-American Development Bank
• Inter-American Development Bank Privileges and Immunities Order
• Convention on the Privileges and Immunities of the United Nations
• Order Respecting the Accession to Convention on the Privileges and Immunities of the United Nations

In your email dated May 26, 2011, you submitted the "Agreement Establishing the Inter-American Development Bank" (the "IDB Agreement") which was published as part of the Canada Treaty Series 1972 No. 17. According to the IDB website, the "Agreement" has been amended on several occasions since it took effect on December 30, 1959. Any further reference made with respect to the "Agreement" will be based on the latest amended version that took effect on July 31, 1995 (footnote 1) .

Paragraph (a) of Section 1 of Article XV of the IDB Agreement states that as a signatory country, Canada must take the steps necessary to enable it to fulfill all of its obligations under the IDB Agreement, which includes changing or creating laws to reflect the privileges and immunities for taxation afforded by the IDB Agreement. Paragraph (b) of Section 9 of Article XI of the IDB Agreement states that no tax shall be levied on or in respect of salaries and emoluments paid by IDB to executive directors, alternates, officials or employees of the Bank who are not local citizens or other local nationals. In other words, salaries and emoluments paid by IBD would be taxable to local citizens and local nationals.

Section 3 of the Inter-American Development Bank Privileges and Immunities Order (footnote 2) (the "IDB Order") indicates that the Organization, IDB, shall be entitled to certain privileges and immunities that are set forth in the Articles of the Convention on the Privileges and Immunities of the United Nations (footnote 3) (the "UN Convention") as follows:

3. (1) The Organization shall have in Canada the legal capacities of a body corporate and shall, to such extent as may be required for the performance of its functions, have the privileges and immunities set forth in Articles II and III of the Convention.

(2) Representatives of states and governments that are Members of the Organization shall have in Canada, to such extent as may be required for the performance of their functions, the privileges and immunities set forth in Article IV of the Convention for representatives of Members.

(3) Officials of the Organizations shall have in Canada, to such extent as may be required for the performance of their functions, the privileges and immunities set forth in Article V of the Convention for officials of the United Nations.

(4) Experts performing missions for the Organization shall have in Canada, to such extent as may be required for the performance of their functions, the privileges and immunities set forth in Article VI of the Convention for experts on missions for the United Nations.

Paragraph 5 of IT-397R Amounts Excluded from Income - Statutory Exemptions states that an "official" of an organization referred to in the FMIOA is a person named and agreed on between the organization in question and its member states and designated as such by the Governor in Council. We are assuming that Mr. X is designated as an official of the IDB.

Paragraph 3(3) of the IDB Order will therefore apply to Mr. X and potentially provide the privileges and immunities set forth in Article V of the UN Convention for officials of the United Nations. Paragraph (b) of Section 18 of Article V of the UN Convention provides that officials are "exempt from taxation on the salaries and emoluments paid to them". However, Paragraph 7 of the Privileges and Immunities Accession Order (United Nations) (footnote 4) (the "UN Order") states, "Nothing in this Order shall be construed as exempting a Canadian citizen residing or ordinarily resident in Canada from taxation imposed by any law in Canada on salaries and emoluments."

Also, paragraph 5(1)(g) of Part II of the FMIOA states "such other officials of an international organization as may be designated by the Governor in Council shall, to the extent specified in the order, have the privileges and immunities set out in Section 18 of Article V of the Convention on the Privileges and Immunities of the United Nations". However, subsection 5(3) states that "Nothing in any order made under subsection (1) exempts a Canadian citizen, residing or ordinarily resident in Canada, from liability for any taxes or duties imposed by any law in Canada."

The requirement that the individual be a Canadian citizen, residing or ordinarily resident in Canada is also supported by the commentary in paragraph 3 of IT-397R Amounts Excluded from Income - Statutory Exemptions which states that the FMIOA generally provides that an official of an international organization of which Canada is a member and whose primary purpose is the maintenance of international peace or the economic or social well-being of the community of nations, who is a Canadian citizen that is resident in Canada and is so employed is subject to tax in Canada on such remuneration.

Therefore, since Mr. X is a Canadian citizen, resident in Canada, he is not exempt from tax by virtue of an enactment of Parliament, namely the FMIOA. As such, the taxpayer is not eligible for the exemption in paragraph 81(1)(a) of the Act.

We regret that our views could not be more favourable.

Yours truly,

Alain Godin
Section Manager for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Canada Revenue Agency

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=781584
2 http://www.canlii.org/en/ca/laws/regu/crc-c-1312/latest/crc-c-1312.html#_PRIVILEGES_AND_IMMUNITIES_2346
3 http://treaties.un.org/doc/Treaties/1946/12/19461214%2010-17%20PM/Ch_III_1p.pdf
4 http://www.canlii.org/eliisa/highlight.do?text=order+respecting+accession+to+convention&language=en&searchTitle=Search+all+CanLII+Databases&path=/en/ca/laws/regu/crc-c-1317/latest/crc-c-1317.html