12 December 1991 Income Tax Severed Letter 913289A F - Canada – Switzerland Income Tax Convention

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.

Canada – Switzerland Tax Convention Article V, Paragraph 3           

This is in reply to your memos dated November 28 and December 3, 1991 regarding the above matter.  We have reviewed the related correspondence attached thereto and provide the following general comments.

Paragraph 3 of Article XV of the Canada – Switzerland Tax Convention (the "Convention") states that, notwithstanding the preceding provisions of that Article (Dependent Personal Services), remuneration in respect of an employment exercised aboard an aircraft operated in international traffic by an enterprise of a Contracting State, shall be taxable only in that State.

Pursuant to paragraph 1(e) of Article III of the Convention an "enterprise of a Contracting State" means an enterprise carried on by a resident of a Contracting State.

24(1)

One must ask whether this was intended by the Convention negotiators, especially in light of the fact that the remuneration in question does not appear to be subject to tax under the domestic law of Switzerland.  It would be easier to make a case that the above result was not intended if the language of the subject Article was peculiar to the Convention, however this is not the case.  The wording to the subject Article is virtually identical in approximately twenty-five tax treaties that Canada has negotiated.  As well, Canada has negotiated other treaties that clearly reserve the right for Canada to tax employment income derived by its residents in these circumstances.  The model that the Department of Finance currently uses when negotiating tax treaties also reserves the right for a Contracting State to tax remuneration derived by a resident of that State. 

21(1)(b)

In our opinion, Canada does not have the right to tax the remuneration in question.  This view extends to other treaties that Canada has negotiated where the wording is similar. 

We hope our comments are of assistance.

for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch