A US company (USco) invoiced its arm’s length Canadian customer (CanCustomer) for services rendered by it outside Canada and for services rendered in Canada by its Canadian subsidiary (CanSub), as reflected in CanSub’s invoice. The USco invoice included separately identified charges for the travel and meal costs of it and CaSub.
After referring to Weyerhaeuser (including the statement therein that “the words ‘fees, commissions or other amounts for services’ are limited to amounts that have the character of income earned in Canada in the hands of the non-resident recipient,” CRA stated
Weyerhaeuser stands for the proposition that the reimbursement of travel and meal expenses is not subject to withholding pursuant to Regulation 105 in situations that are similar to the situations in that decision.
[Here] the reimbursement by CanCustomer to USCo of travel costs and meals, whether those amounts were paid by USCo or by Cansub, would not be subject to withholding tax under paragraph 153(1)(g) and Regulation105. The fees paid by CanCustomer to USCo, to the extent such fees are in respect of services performed in Canada, are subject to withholding pursuant to paragraph 153(1)(g) of the Act and Regulation 105. As a sidenote, we note that if CanSub were a non-resident, then payments from USCo to CanSub may also be subject to Regulation 105 withholding.
This letter represents a change to CRA’s position … [in 2008-0297161E5] … . Reimbursement of subcontractor fees after June 30, 2024 are subject to Regulation 105 withholding.