16 February 2001 External T.I. 2000-0049115 - Korea Treaty

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.

Principal Issues: Whether Canada is precluded (by virtue of Article 14 of the Canada-Korea Income Tax Convention) from taxing a Canadian resident individual's income from employment in respect of personal services performed in Korea as a flight training instructor?

Position: No

Reasons: Paragraphs 1 and 2 of Article 14 do not affect Canada's right to tax a Canadian resident individual. Paragraph 3 of Article 14 does not apply to the facts of this case.

XXXXXXXXXX 	2000-004911
		Tim Kuss
February 16, 2001

Dear XXXXXXXXXX:

Re: Article 14 of the Canada-Korea Income Tax Convention (the "Convention")
Request for Technical Interpretation

This is in reply to your letter requesting a technical interpretation regarding the application of Article 14 of the Convention to the following hypothetical situation.

Background Information

1. Mr. X is an individual resident in Canada under the Income Tax Act (the "Act") and for purposes of the Convention.

2. Mr. X is employed by a corporation ("Flightco") that is a resident of Korea for purposes of the Convention.

3. Mr. X is employed by Flightco as a flight training instructor and all of his employment services will be performed in Korea at the flight training center of Korean Air Lines ("KAL"). Mr. X will be present in Korea for more that 183 days in the particular taxation year.

It is your view that, by virtue of paragraphs 1 and 2 of Article 14 of the Convention, Mr. X would not be subject to tax in Canada on his remuneration in respect of his employment as a flight instructor.

Opinion

In our opinion you have misinterpreted Article 14 of the Convention.

Paragraph 1 of Article 14 provides generally that remuneration derived by a resident of a Contracting State in respect of personal services shall be taxable only in that State unless the services are rendered in the other Contracting State. If the services are so rendered, such remuneration as is derived therefrom may be taxed in that other State. This does not preclude the state of residence (in this case Canada) from taxing the remuneration, it simply allows the source state (in this case Korea) the right to tax the remuneration.

Paragraph 2 of Article 14 provides circumstances where, notwithstanding that the services are rendered in the other Contracting State, the remuneration derived therefrom may only be taxed in the state of residence (in this case Canada).

In the hypothetical case outlined above, the Convention would allow Korea to tax Mr. X's remuneration in respect of his personal services provided to Flightco. Canada would also tax Mr. X's remuneration (as a resident of Canada he would be taxed in Canada on his world income), however credit for Korean taxes would be granted in accordance with Article 20 of the Convention.

We would also add that Mr. X's services provided to Flightco would not be considered in respect of an employment exercised aboard a ship or aircraft operated in international traffic, therefore paragraph 3 of Article 14 would not be applicable to Mr. X's remuneration.

We hope our comments are of assistance.

Yours truly,

for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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