22 January 1990 Income Tax Severed Letter ACC8916 - Canada-Finland Income Tax Convention - Social Security Pensions from Finland

19(1)                                             HBW 4125-F1
                                                  Jim Wilson
                                                  (613) 957-2063
January 22, 1990

Dear 19(1)

We are writing in regards to the tax treatment of Finnish social security pensions paid to residents of Canada.

We have recently received enquiries as to whether social security pensions from Finland meet the definition of "pension" or "annuity" under Article II of the Canada-Finland Income Tax Convention (1958). Based on information supplied from Finland to Canadian residents (example attached), it is apparent that the Finnish Tax Administration considers these benefits neither pensions nor annuities for purposes of the treaty. Accordingly, Article X does not apply and Finland has a right to tax these amounts at source.

It is our understanding that certain benefits (or portions thereof) paid under a national social security scheme may be considered pensions received in consideration of past services, particularly where the amount of the benefit is effected by premiums paid as a result of services rendered. In this regard, we would appreciate any comments you may have. Information on your country's social security schemes would also be helpful. The enquiries we presently have in our office pertain to the tax treatment of the Finish National Old Age Pension and the Front - Veterans Supplement.

The same problem does not arise with social security pensions paid by Canada to residents of Finland. Under domestic laws, we do not tax such social security pensions paid to non-residents.

We have also been receiving enquiries from Canadian taxpayers in receipt of social security pensions from Finland regarding the calculation of the Finnish tax at source as outlined in the information bulletin they have received from the National Pensions Administration (see attached).

The bulletin indicates that the tax at source is 35% of the amount of the total combined pensions subject to tax in excess of FIM 1500 per month. There appears to be some confusion as to whether the statement means that the 35% rate is to be applied solely to the social security component of the total amount of pension income received or whether the tax will be applied to the entire excess over FIM 1500 taking into account pensions from all sources. In the latter case, the effective rate of tax on the social security component could very well exceed 35%. we would therefore ask that you confirm our understanding that the tax is only applied to the amount of the social security pension paid and not to pension paid in respect of past services.

We look forward to hearing from you soon.

Yours sincerely,

C. Savage A/Director Provincial and International Relations Division

Attachment

JW/sg 19(1) File copy Sequence file Author's copy Chrono file(2) Reading file