2 March 1988 Income Tax Severed Letter 5-5429 - [880302]

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.

K.B. Harding (613) 957-2129

March 2, 1988

Dear Sirs:

This is in reply to your letter of January 25, 1988 concerning the transfer of money between pension plans.

Your letter states that you are concerned with a situation where your client, a parent company's pension plan located in Switzerland, wishes to set up a reciprocal agreement between it and a Canadian pension plan. You are concerned whether there are any arrangements under the Canada-Switzerland Income Tax Convention (Convention) which would permit a tax free transfer of money between the two pension plans.

Article XVIII of the Convention provides that pensions arising in Canada and paid to a resident of Switzerland may be taxed in Canada. However, in the case of periodic pension payments the tax so charged shall not exceed 15 per cent of the gross amount of the payment. Since the Convention does not deal with lump sum payments paid by a resident of Canada to resident of Switzerland, Canadian domestic law will apply and it requires a 25 per cent withholding tax on lump sum payments made out of a Canadian pension fund to any non-resident of Canada.

We are not certain whether under the laws of Switzerland there would be any requirement to withhold tax on amounts paid by a Swiss pension plan to a Canadian pension plan, however, the Convention would not prevent that country from doing so if their domestic law provides for such withholding of tax. You indicated by phone that the government of Switzerland does not withhold tax on amounts transferred in such cases.

As you are probably aware Information Circular 79-8R2 outlines the procedures to be followed and forms to be used to transfer funds from a pension fund or plan to a registered pension plan in Canada. You indicated by phone that such transfers are permitted in accordance with Information Circular 72-13R7.

We trust these comments are adequate for your purposes.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernment Affairs Branch