Example #18
USCO is a US company that provides engineering services. CANCO is
a Canadian company that needs the temporary assistance of an engineer
to complete a Canadian contract it has secured. USCO agrees to assign
one of its US-resident employees to CANCO for four months under the
direct supervision and control of CANCO’s senior engineers. The US
employee will continue to be paid by USCO, but CANCO will reimburse
USCO for the related employment expenses, including a 5% markup.
The remuneration in the calendar year will be greater than $10,000.
The primary issue then is to determine who is exercising the functions
of an employer. Generally, jurisprudence has determined that the
employer is the person who has rights to the work produced and who
bears the relative responsibility and risks, including:
• Control and responsibility of the workplace,
• Authority to instruct the individual, and
• Determination of work and holiday schedules.
A secondment agreement is generally an indication that the host
employer will take full employer responsibilities for the employee
during the work days in the host country. Furthermore, foreign
employees who are performing the services of an officer or director
for a Canadian company will be deemed to be employees of the Canadian
company.6
There are also situations in which misguided attempts are made to
forgo the inter-corporate cross-charge with the objective of avoiding
Canadian personal tax. But the reality is that determining whom the
remuneration is “borne by” is not dependent on whether a deduction
is claimed—it is dependent on whether the inter-corporate charge is
“allowable” as a deduction. Therefore, the only result of foregoing the
inter-corporate charge is to put the transfer pricing offside.
A couple of examples provided by the Organisation for Economic
Co-operation and Development (OECD)7 should illustrate these
concepts:
ITA Section 248 – definition of “employee.”
6
OECD, Commentaries on the Articles of the Model Tax Convention,
7
2010.
Ibid, 8.24 example 5, p. 263.
8
Ibid, 8.26 example 6, p. 263.
9
On July 31, 2015, the Department of Finance released draft
Example #29
USCO and CANCO are part of the same multinati