WASHINGTON – U.S. companies that temporarily station workers in Canada are finding it hard to avoid that nation’s withholding tax, and delays in obtaining waivers from it may be hurting the Canadian economy, tax preparers say.
Under an income tax treaty between the two countries, U.S. businesses that don’t have a permanent establishment in Canada are exempted from a 15 percent withholding tax on employees working there on a temporary basis. The companies must obtain tax waivers from the Canada Revenue Agency in advance, though, and that process is proving increasingly difficult, Bloomberg BNA reports.
The snags in receiving the waivers come as the global workforce is more mobile, with information-technology businesses and other industries moving employees around the globe.
Issuance of the waivers, which were created to try to assist businesses, has been slowing, particularly over the past two months or so, Lorna Sinclair, a tax partner and global services leader in the Toronto office of Deloitte & Touche LLP. Sinclair said in an interview.
It was meant to make the whole process of getting employees into Canada easier, she said. But what we’re finding is that taxpayers are now getting notices that their waivers have been denied. Nothing’s getting approved.
The upshot is that the U.S. companies face having to withhold the tax and then file Canadian returns to get the money back later.
Along with information-technology businesses, affected industries include global engineering companies, said Bruce Reynolds, a Bloomberg BNA tax and accounting analyst.
The private sector is working with the CRA to address the concerns about the process, according to the tax preparers interviewed by Bloomberg BNA.
CRA spokesman Philippe Brideau said in an email that the office will continue to look at other potential changes to streamline the waiver process for nonresident employees.
Canadian officials really are working on this issue, but they’re coming up with inappropriate solutions, Sinclair said.