Alert for multinational companies: Payroll and immigration compliance requirements

Tax Insights
from Human Resource Services (HRS)
Issue 2014-22
Alert for multinational companies:
Payroll and immigration compliance
requirements
April 23, 2014
In brief
Cross-border employee travel into Canada raises various Canadian tax withholding and immigration
compliance requirements. Multinational companies should consider whether they have the processes and
controls in place to manage these requirements and the associated risks.
This is especially important because many multinational companies have become more globally
integrated, increasing the interaction between Canada and a group’s global network. As a result, more
individuals – including key executives and project-based employees – are entering Canada to perform a
variety of functions.
In detail
Canadian payroll
requirements for
non-resident employees in
Canada
Companies that have employees
who perform employment
duties in Canada should be
aware of Canadian payroll
compliance requirements, even
if the employees are ultimately
exempt from Canadian taxation
under an income tax treaty.
Regulation 102
Section 102 of the Income Tax
Regulations (Reg. 102) requires
every employer (whether
resident or non-resident of
Canada) that pays remuneration
to an employee, in respect of
employment duties rendered
physically in Canada, to
withhold Canadian taxes on the
remuneration.
There are no de minimis
exceptions and there are no
exceptions pursuant to a tax
treaty (even though the treaty
may ultimately exempt the
remuneration from Canadian
personal taxation).
If remuneration is exempt
under a treaty, any withholding
should be refundable to the
employee on the filing and
processing of a Canadian
personal tax return.
example, to employees who
travel to Canada:

to participate in operational
projects

to meet with clients

to participate in internal
projects

to attend board meetings, or

for same-day or short-term
business meetings
Canada Revenue Agency audits
The Canada Revenue Agency's
(CRA’s) audit activity relating to
Reg. 102 has increased
significantly in recent years.
The Reg. 102 withholding
obligation could apply, for
www.pwc.com/ca/taxinsights
Tax Insights
The CRA had previously been more
lenient with compliance and its audits
focused on specific industries. This is
no longer the case.
Often the Reg. 102 payroll audit arises
due to other CRA audit activity. For
example, it may stem from a transfer
pricing or corporate income tax audit.
Approach of border authorities
Border authorities are also aware of
the Reg. 102 issue and often ask for
the traveller’s paperwork. In some
instances, executives have been
questioned about their travel to
Canada and ultimately disallowed
entry, with the risk of being barred
re-entry for an extended period. This
can have serious implications to the
reputation of executives and the
company. As well, it can disrupt
operations.
What should your company do to
comply?
Your company should track the time
employees spend working in Canada
to determine:

the remuneration attributable to
time spent in Canada

the tax withholding required

whether a Reg. 102 waiver should
be requested (discussed below
under Waivers)

the amounts to report on annual
payroll reporting forms (Form
T4s)

whether the employee should file
a personal tax return to claim
refunds of tax withheld
Employers that fail to deduct and
remit as required by Reg. 102 may be
liable for:

2
the total Canadian tax that should
have been withheld from all


employee remuneration for duties
rendered physically in Canada
respect of salary and wages paid after
the effective date on the waiver.
a 10% penalty on the amount of
Canadian tax that should have
been withheld (can increase to
20% for repeat non-compliers)
What other tax issues can arise?
accrued late interest charges
In many cases, the tax an employer is
assessed can be recovered by the
employee (on filing a return) and
returned to the employer.
However, there is no statute of
limitations with respect to Reg. 102
deficiencies. Therefore, if the CRA
audits prior years and employees are
no longer with the company, an
employer may be unable to recover
the tax remitted.
Waivers
It may be possible to obtain a waiver
from the Canadian withholding
requirement if employee
remuneration is expected to be
exempt from Canadian tax under a
treaty.
The waiver application is made by
submitting to the CRA, for each
employee, either Form R102-J or
Form R102-R. The deadline is
generally 30 days before the start of
employment services in Canada (or
before the employee is first paid for
duties rendered in Canada), to allow
sufficient time to process the
application.
Applications should be submitted
early and it is a good idea to leverage
existing relationships at the CRA. The
application process involves various
registrations and filing procedures, so
delays can arise.
If the application is approved, the
CRA will authorize the employer not
to withhold any taxes, but only in
A non-resident company that has
employees working in Canada may be
considered to have a Canadian taxable
presence. In addition, if the services
are paid for by a Canadian company
through a cross-border charge or
management fee, a separate
withholding tax could apply to the
payments.
These matters should be considered as
part of the overall Reg. 102 analysis.
However, their implications would not
eliminate the Reg. 102 obligations.
Immigration
In addition to tax exposure, employers
should also be mindful of compliance
from an immigration perspective.
Employers that send non-resident
employees to perform duties in
Canada should consider if:

a work permit is required, or

the duties performed can be
classified as those of a business
visitor
If a work permit is required, the
employee must obtain:

a work visa from a Canadian visa
office abroad, or

a work permit at the Canadian
port-of-entry,
depending on whether the employee
requires a visa to travel to Canada.
In some cases, an employer may be
required to apply for and obtain a
Labour Market Opinion from
Employment and Social Development
Canada (ESDC), which will authorize
an employee to apply for a work visa
or permit for Canada.
pwc
Both the employer and the foreign
employee must comply with the terms
of the work permit. Non-compliance
can result in harsh fines and the
employer may even be barred from
employing foreign nationals in
Canada for two years.
How can PwC help?
PwC can offer a full service solution to
help you with all aspects of employee
travel compliance. This includes:

helping you understand the
general framework of Reg. 102
and its implications to your
organization

working with you to develop and
implement policies and a program
framework to manage your risks,
taking into account the
practicalities of managing a
globally integrated business

assisting you with tax compliance,
including guidance with respect to
understanding and managing the
Reg. 102 waiver application
process

leveraging the knowledge of our
affiliated immigration law firm,
PricewaterhouseCooopers
Immigration Law LLP,1 to provide
you immigration advice with
respect to non-resident employees
working in Canada
What else should employers do?
Employers that have employees
travelling to Canada should establish a
clear policy with respect to employee
travel and compliance with Canadian
payroll and immigration
requirements.
Processes should be established to:

determine whether work permits
are required for employees

prepare and apply for Reg. 102
waivers for employees who are tax
exempt under a tax treaty

ensure employees:
- track their work days in Canada
accurately
- specify the provinces and
territories involved

help employees apply for a
Canadian tax identification
number (if they do not already
have one)

operate a formal shadow payroll
system that accumulates the
information of all non-residents
working in Canada on a regular
and timely basis

prepare and file all annual payroll
reporting slips with the CRA

assist employees with the filing of
any Canadian personal tax returns
(if applicable)
1. Formerly, Bomza Law Group.
pwc
3
Tax Insights
from Human Resource Services (HRS)
Issue 2014-22
Let’s talk
For a deeper discussion of these issues, please contact any of the following or your PwC HRS advisor.
Dave Peters
+1 (403) 509 7481
[email protected]
Anne Kestenbaum
+1 (416) 365 8169
[email protected]
Dan Fontaine
+1 (905) 815 6408
[email protected]
Chris Chan
+1 (416) 815 5258
[email protected]
Immi Sikand, PricewaterhouseCoopers Immigration Law LLP
+1 (416) 598 8849 ext. 409
[email protected]
Tax News Network (TNN) provides subscribers with Canadian and international information, insight
and analysis to support well-informed tax and business decisions.
Try it today at www.ca.taxnews.com or 1 866 Tax News (1 866 829 6397)
.
© 2014 PricewaterhouseCoopers LLP, an Ontario limited liability partnership. All rights reserved.
PwC refers to the Canadian member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for
further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.