2023-0986461E5 Commissions Paid to a Canadian branch

Principal Issues: Whether commissions paid to a Canadian branch of a non-resident corporation made in respect of services provided by the latter in Canada are subject to Regulation 105 withholding.

Position: Yes.

Reasons: A Canadian branch of a non-resident corporation is not a separate.

Author: Liu, Vicky
Section: Regulation 105

XXXXXXXXXX                                                                 2023-098646
                                                                                         Vicky Liu

Subject: Commissions Paid to a Canadian Branch

We are writing in response to your mail dated July 26, 2023, requesting our views regarding the withholding requirements under section 105 of the Income Tax Regulations (the “Regulations”) in respect of commissions paid to a Canadian branch.

As outlined in your enquiry, Company B is a non-resident corporation which operates a branch in Ontario, Canada and files Canadian branch corporate tax returns to report income earned in Canada. LLC is a non-resident corporation, which files Canadian corporate tax return and claims Treaty-Based Exemptions. LLC and Company B are related. LLC pays commissions to the Canadian branch of Company B for the services provided by the latter in Canada.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (the “Act”) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

Regulation 105 provides that every person paying to a non-resident person a fee, commission or other amount in respect of services rendered in Canada shall deduct or withhold 15 per cent of such payment.

The reference to “every person paying”, for the purposes of Regulation 105, includes any individual, corporation, or trust, whether a resident or a non-resident of Canada.

Regulation 105 withholding is applicable to payments made to non-residents, who provide their services in Canada. Since a “branch” of a non-resident corporation is not a separate legal entity from the non-resident corporation, payments to a Canadian branch of a non-resident corporation made in respect of services provided in Canada are subject to Regulation 105 withholding.

Regulation 105 withholding does not represent a final tax payment of the non-resident. Rather, it is a payment on account of the non-resident's potential Part I tax liability to Canada. The ultimate tax liability is determined after the assessment of the non-resident's Canadian income tax return.

Where a non-resident can demonstrate that the normally required Regulation 105 withholding is in excess of the ultimate Canadian tax liability, the CRA may waive or reduce the withholding accordingly pursuant to the provisions of subsection 153(1.1) of the Act. Please refer to Information Circular IC75-6R2 “Required Withholding from Amounts Paid to Non-Residents Providing Services in Canada” dated February 23, 2005 for further information.

We trust our comments will be of assistance.

Yours truly,

Angelina Argento
Section Manager
for Division Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© His Majesty the King in Right of Canada, 2024

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté le Roi du Chef du Canada, 2024