IBM Canada Ltd. v. The Minister of Finance for Ontario

[Indexed as: IBM Canada Ltd. v. Ontario (Minister of Finance)]

89 O.R. (3d) 641

Court of Appeal for Ontario,

Doherty, Rosenberg and Blair JJ.A.

April 1, 2008

Taxation -- Payroll tax -- Company occasionally assigning employees to work abroad for foreign affiliate for fixed term -- Expatriates paid by company and foreign affiliate reimbursing company -- Minister of Finance properly assessing company on money paid to expatriates as part of "taxable total Ontario remuneration paid" by employer -- Company being employer of expatriates while they were working for foreign affiliate -- Money paid to expatriates constituting "remuneration paid" by company despite fact that foreign affiliate reimbursed company -- Employer Health Tax Act, R.S.O. 1990, c. E.11, s. 2(2).

Employees of IBMC were occasionally assigned to work abroad for one of IBMC's foreign affiliates. The assignments lasted from one to five years. While on assignment, the "expatriates" worked exclusively for the foreign affiliate, but were paid by IBMC, which was reimbursed by the foreign affiliate. Section 2(2) of the Employer Health Tax Act provides that the tax imposed on employers to fund the Ontario Health Insurance Plan is to be calculated as a percentage of the "taxable total Ontario remuneration paid by the employer during that year". The Minister assessed IBMC on the money it paid to the expatriates while they were working for the foreign affiliate. IBMC appealed to the Superior Court of Justice. The court held that although expatriates remained employees of IBMC while working for the foreign affiliate, they were not remunerated by IBMC when working for the foreign affiliate, so that IBMC was not liable for the tax. The Minister appealed. IBMC cross- appealed the finding that it was an employer of the expatriates while they were working for the foreign affiliate.

Held, the appeal should be allowed; the cross-appeal should be dismissed.

There was an employer/employee relationship between IBMC and the expatriates while the expatriates were on assignment abroad. The assignment was temporary and for a fixed period. The contractual relationship whereby the expatriate provided services to the foreign affiliate in exchange for wages and other benefits was exclusively between the expatriate and IBMC. The expatriate would have no contractual claim against the foreign affiliate for any breach of the conditions and terms of the letter of assignment. Nor would the foreign affiliate have a claim in contract against the expatriate for any breach of the terms of that letter. IBMC assumed the responsibility to pay the expatriate's wages, bonuses and other benefits. The foreign affiliate's promise to reimburse IBMC for those payments in no way diminished IBMC's direct obligation to the expatriate. IBMC retained a large measure of control over the amount of remuneration paid to the expatriate while he or she was working abroad. The expatriate continued to participate in IBMC's pension, medical, dental and stock option plans, and Canada Pension Plan contributions were made on behalf of the expatriate while he or she was abroad. Any termination of employment while on foreign assignment was ultimately in the hands of IBMC.

IBMC paid remuneration to the expatriates. Used in the context of an ongoing employer/employee relationship, the phrase "remuneration paid" captures moneys paid by an employer to an employee pursuant to the employer's contractual obligations to the employee to pay for services provided by the employee. The payments made by IBMC into the expatriate's bank account were payments made in [page642] the context of an ongoing employer/employee relationship and pursuant to IBMC's contractual obligation to the expatriate. The identity of the primary beneficiary of the services provided by the expatriate did not alter the remunerative character of the payments. The nature of the payments did not turn on the ultimate source of the funds, so the fact that the foreign affiliate bore the ultimate economic burden of the payment did not mean that IBMC did not "pay remuneration" to the expatriate. By imposing a tax based on "remuneration paid" in the context of an employer/ employee relationship, the Act looks to the nature of the payment as between the employer and the employee and not to the source of the funds or to any arrangement which may exist between a third party and the employer for reimbursement.

APPEAL AND CROSS-APPEAL from judgments of C. Campbell J., [2007] O.J. No. 273, 154 A.C.W.S. (3d) 981 (S.C.J.), appealing an assessment by the Minister of Finance.

Cases referred to Pointe-Claire (City) v. Quebec (Labour Court), 1997 CanLII 390 (SCC), [1997] 1 S.C.R. 1015, [1997] S.C.J. No. 41, 146 D.L.R. (4th) 1, 211 N.R. 1, J.E. 97-1055, 46 Admin. L.R. (2d) 1, 28 C.C.E.L. (2d) 177, 97 C.L.L.C. Â220-039, 70 A.C.W.S. (3d) 475, apld Other cases referred to IBM Canada Ltd. v. Ontario (Minister of Finance), [2007] O.J. No. 273, 154 A.C.W.S. (3d) 981 (S.C.J.); Placer Dome Canada Ltd. v. Ontario (Minister of Finance), [2006] 1 S.C.R. 715, [2006] S.C.J. No. 20, 2006 SCC 20, 266 D.L.R. (4th) 513, 348 N.R. 148, J.E. 2006-1100, 210 O.A.C. 342, 2006 D.T.C. 6532, 147 A.C.W.S. (3d) 914; Progressive Packagin Ltd. v. Ontario (Minister of Finance), 1999 CanLII 18711 (ON CA), [1998] O.J. No. 3613, 131 O.A.C. 70, 95 A.C.W.S. (3d) 399 (C.A.), affg [1998] O.J. No. 4798, 85 O.T.C. 91, 84 A.C.W.S. (3d) 186 (Gen. Div.) Statutes referred to Employer Health Tax Act, R.S.O. 1990, c. E.11, ss. 1 "employee", "employer", "remuneration", "total Ontario remuneration" [as am.], 2 [as am.], 10(1) [as am.]

Lori E.J. Patyk and Frank S. Stopar, for appellant. Chia-Yi Chua and R. Brendan Bissell, for respondent.

The judgment of the court was delivered by

DOHERTY J.A.: -- I Overview

[1] The Ontario Health Insurance Plan ("OHIP") is funded by a tax imposed on employers pursuant to the Employer Health Tax Act, R.S.O. 1990, c. E.11 as amended (the "Act"). Section 2(2) of the Act provides that the tax is to be calculated as a percentage of the "taxable total Ontario remuneration paid by the employer during that year". [page643]

[2] IBM Canada Ltd. is part of a worldwide multi-national group of affiliated IBM companies, all of which are controlled by International Business Machines Corporation. IBM Canada has a permanent business establishment in Ontario. From time to time, persons employed by IBM Canada take assignments to work abroad for one of IBM Canada's foreign affiliates. These assignments can last from one to five years. While on assignment, these persons, referred to by IBM Canada as expatriates, live in the foreign country and work exclusively for the foreign affiliate. They are paid by IBM Canada, which is reimbursed by the foreign affiliate.

[3] The Minister assessed IBM Canada under the Act on the money it paid to the expatriates while they were working for the foreign affiliate. IBM Canada asked the Minister to reconsider that assessment. He did so and affirmed his initial assessment.

[4] IBM Canada appealed the Minister's assessment to the Superior Court of Justice pursuant to s. 10(1) of the Act. It advanced two arguments. First, IBM Canada argued that the expatriates were not employees of IBM Canada while they were working for the foreign affiliate. Second, IBM Canada argued that even if the expatriates remained employees of IBM Canada while working abroad, they were not remunerated by IBM Canada since they worked exclusively for the foreign affiliate who reimbursed IBM Canada for all payments it made to the expatriate. If either argument advanced by IBM Canada carried the day, it did not owe tax under the Act on moneys paid to expatriates while they were working abroad for foreign affiliates.

[5] These two issues came before Campbell J. by way of four appeals (one for each taxation year between 1996 and 1999) and an application brought by IBM Canada for declaratory relief. The issues of statutory interpretation raised on the application for declaratory relief were identical to those raised on the appeal.

[6] Campbell J. held that IBM Canada was not liable for the tax assessed by the Minister. He held that although the expatriates remained employees of IBM Canada while working for the foreign affiliate, they were not remunerated by IBM Canada when working for the foreign affiliate. The conclusions reached by Campbell J. are captured in the declaratory relief he granted on the application: 1. THIS COURT DECLARES that while working outside Canada on temporary assignment, an expatriate individual normally resident in Canada and employed by IBM Canada remained an "employee" of IBM Canada for the purposes of s. 1(1) of the EHTA. [page644] 2. THIS COURT DECLARES that during the time of assignment outside Canada, individuals normally employed by IBM Canada were not "remunerated" by IBM Canada for the purposes of the EHTA.

[7] The Minister appeals. Counsel for the Minister submits that while Campbell J. correctly concluded that the expatriates were employees of IBM Canada while they were working for the foreign affiliate, he erred in holding that the money paid to the expatriates by IBM Canada did not constitute "remuneration paid" for the purposes of determining IBM Canada's liability for taxation under the Act.

[8] IBM Canada supports Campbell J.'s conclusion that IBM Canada did not pay remuneration to the expatriates while they were on assignment to the foreign affiliate. However, by way of cross-appeal, IBM Canada challenges the finding that IBM Canada was an employer of the expatriates while they were working for the foreign affiliate. Counsel for IBM Canada correctly takes the position that success by IBM Canada either in resisting the Minister's appeal or on its cross-appeal means that IBM Canada does not owe the tax assessed by the Minister.

[9] I would allow the Minister's appeal and dismiss the cross-appeal. For the reasons that follow, I agree with the holding below that IBM Canada and its expatriates remain in an employer/employee relationship while the expatriates are working abroad for foreign affiliates. Consequently, I would dismiss the cross-appeal. However, I cannot agree that the moneys paid by IBM Canada to expatriates do not constitute "remuneration paid" for the purposes of the Act. In my view, payments made by IBM Canada are caught by, and taxable under, the Act. Consequently, I would allow the appeal.

II The IBM Canada Expatriate Program

[10] As indicated above, employees of IBM Canada, referred to as expatriates, are from time to time assigned to IBM affiliate companies in other countries The assignments arise when it is determined that an IBM Canada employee has a particular skill set needed by one of IBM Canada's foreign affiliates. There are various arrangements that IBM Canada and the foreign affiliate can enter into to make the services of the IBM Canada employee available to the foreign affiliate. The assignments in issue in these proceedings arise out of what IBM Canada refers to as "Type B" assignments. IBM Canada's internal documentation describes this kind of assignment in these terms: [page645]

Assignments for the prime benefit of the work location country where assignees are treated as employees of the work location country.

Such assignees may perform the same functions as regular employees of the work location countries, including the ability to incur commitments vis-à-vis third parties. Such assignees remain employees of their home country (headcount on the Canadian inactive strength) since they continue to be subject to the benefit programs, salary plans and applicable tax withholdings of their home country. (Emphasis added)

[11] Employees of IBM Canada who go on foreign assignment live in the foreign country, work exclusively for the foreign affiliate and are under the day-to-day direction and supervision of the foreign affiliate. Normally, the foreign affiliate approaches IBM Canada to obtain the services of the employee. The employee goes to work for the foreign affiliate only if IBM Canada, the foreign affiliate, and the employee all agree to the assignment. The employee is guaranteed employment with IBM Canada when the assignment is complete, although it may be at a different position or location in Canada.

[12] The terms and conditions of the foreign assignment are set out in detail in an "assignment letter", with attachments, prepared by IBM Canada and signed by the expatriate. The foreign affiliate is not a party to the terms of the letter and does not sign the letter.

[13] The assignment letter identifies the expatriate's "international assignment employer" (the foreign affiliate), sets out the length of the assignment, and the place where the expatriate will be working. The letter also provides that the laws of Canada apply to the assignment unless overridden by the laws in the foreign jurisdiction.

[14] IBM Canada undertakes to pay the expatriate's base salary, any bonuses to which he or she becomes entitled, any mobility allowance owed and any international service allowance earned by the expatriate. These moneys are deposited in Canadian funds by IBM Canada's payroll department into the expatriate's Canadian bank account. The expatriate is responsible for arranging the transfer of funds to the foreign jurisdiction. IBM Canada pays certain costs associated with the transfer of the funds. The expatriate remains on the IBM Canada payroll throughout the term of the foreign assignment.

[15] The expatriate's salary is determined according to IBM Canada's pay grid. If a salary freeze is in effect for employees of IBM Canada, that freeze will apply to the expatriate while he or she is working with a foreign affiliate. Entitlement to merit raises is based on performance evaluations done by the [page646] foreign affiliate. However, the quantification of any merit increase is based on IBM Canada's salary band and payments are calculated according to IBM Canada's payout tables. The expatriate may be eligible while on foreign assignment to receive overtime payments based on IBM Canada's compensation package.

[16] The foreign affiliate is responsible for the work assignments given to the expatriate, the fixing of working hours, and determining what days will be designated as holiday days. The foreign affiliate is also responsible for day-to-day discipline matters. Only IBM Canada can terminate the expatriate for cause. If the expatriate must be terminated due to downsizing, he or she will return to IBM Canada and receive a severance package from IBM Canada. IBM Canada cannot demand the return of the expatriate prior to the completion of the term of the assignment unless the foreign affiliate agrees.

[17] The amount of vacation time to which the expatriate is entitled while working abroad is determined by IBM Canada. The timing of that vacation is fixed by the foreign affiliate.

[18] The expatriate is covered by the IBM Canada's pension, medical and dental plans while working for the foreign affiliate. [See Note 1 below] Canada Pension Plan payments are also made while the expatriate is working abroad. Expatriates are eligible to continue their participation in IBM Canada's stock purchase plan while working abroad.

[19] IBM Canada undertakes to pay any "excess tax" incurred by the expatriate while working abroad. "excess tax" is defined as any tax beyond the amount the expatriate would have had to pay had he earned the same amount in Canada.

[20] IBM Canada is responsible for the initial approval of the assignment (with the consent of the employee and the foreign affiliate). IBM Canada must also maintain contact with the local manager of the foreign affiliate responsible for the expatriate while he or she is working abroad. Finally, IBM Canada is responsible for the reintegration of the expatriate into the IBM Canada workforce upon completion of the foreign assignment. [page647]

[21] As indicated above, IBM Canada makes various payments, including salary payments, to the expatriate by way of deposits into his or her Canadian bank account. The foreign affiliate enters into an intercompany agreement with IBM Canada whereby the foreign affiliate agrees to reimburse IBM Canada for all payments made to the expatriate. That agreement is between IBM Canada and the foreign affiliate. The expatriate is not a party to that agreement.

III The Statutory Scheme

[22] The Act creates a payroll tax chargeable against employers who have permanent business establishments in Ontario at which their employees report to work or from which the employer pays remuneration to its employees. The tax is based on the amount of remuneration paid by the employer to employees who work at or are paid from a permanent business establishment in Ontario. The tax is not tied to the use of the services provided by OHIP or to the place where employment services are performed: Progressive Packaging Ltd. v. Ontario (Minister of Finance), [1998] O.J. No. 4798, 85 O.T.C. 91 (Gen. Div.), at para. 28, affd 1999 CanLII 18711 (ON CA), [1999] O.J. No. 3613, 131 O.A.C. 70 (C.A.).

[23] Section 2(1) of the Act creates the employer's liability for the tax. Section 2(2) provides that the amount of tax payable by the employer is the amount of "total Ontario remuneration paid by the employer" multiplied by the percentages identified in the section.

[24] "Total Ontario remuneration" is a defined term in s. 1 the Act, which reads:

"total Ontario remuneration", in respect of an employer, means the total remuneration paid, (a) to or on behalf of all of the employees of the employer who report for work at a permanent establishment of the employer in Ontario, and (b) to or on behalf of all of the employees of the employer who are not required to report for work at a permanent establishment of the employer but whose remuneration is paid from or through a permanent establishment of the employer in Ontario.

[25] Subsection (a) of the definition has no potential application to this case because the expatriates do not report to work at a permanent establishment of IBM Canada in Ontario while they are working for the foreign affiliate. However, subsection (b) has potential application to the expatriates because while they are [page648] not required to report to work at a permanent establishment of IBM Canada in Ontario, they are paid through a permanent establishment of IBM Canada in Ontario. [See Note 2 below]

[26] The definition of "total Ontario remuneration" speaks of remuneration paid by an employer to an employee. The words "employee", "employer" and "remuneration" are all defined in s. 1 of the Act:

"employee" means, (a) an individual employed by an employer, . . .

"employer" means a person or a government, including the government of a province, a territory or Canada, who pays remuneration to an employee;

"remuneration" includes all payments, benefits and allowances received or deemed to be received by an individual that, by reason of section 5, 6 or 7 of the Income Tax Act (Canada), are required, or would be required if the individual were resident in Canada, to be included in the income of the individual for the purposes of that Act and, without limiting the generality of the foregoing, includes salaries and wages, bonuses, taxable allowances and commissions and other similar amounts fixed by reference to the volume of sales made or contracts negotiated, but does not include a pension, annuity or superannuation benefit package paid by an employer to a former employee after retirement of the employee;

IV Analysis

[27] Both issues raised before Campbell J. and on this appeal and cross-appeal arise out of the statutory definition of "total Ontario remuneration". Moneys paid by IBM Canada to the expatriates that fall within the broad definition of remuneration, will be caught within the definition of "total Ontario remuneration" and, therefore, taxable only if an employee/employer relationship existed between the expatriate and IBM Canada at the time the payment was made by IBM Canada. In addition, even if an employee/employer relationship exists, the payments will attract tax under the Act only if they constitute "remuneration paid". The first inquiry looks to the relationship between the payor and the payee. The second inquiry examines the character of the payment.

[28] The approach to interpreting taxation statutes was considered in Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, [2006] 1 S.C.R. 715, [2006] S.C.J. No. 20, at paras. 21-24. As set [page649] out by LeBel J., the interpretation of a taxing statute begins with the words used in the statute. If the words are precise and unequivocal then the words used will dominate, and may well determine, the interpretative exercise. No statutory text is, however, an island to be considered in isolation. The purpose animating the legislation and the context in which the statute operates may assist in identifying the meaning of the text. The role of context and purpose in the interpretative process increases as the clarity of the language used decreases.

[29] Like many taxing statutes, this Act is thick with detail and on first reading somewhat mind numbing. However, with the benefit of the careful reasons of Campbell J. and the full argument of counsel, I have come to the view that the relevant language used in the Act is clear and provides the answers to both questions of statutory interpretation raised in these proceedings. I find nothing in the purpose of the Act or in the relevant context that suggests a meaning other than that garnered from the text of the Act itself.

(i) The cross-appeal: Was there an employer/employee relationship?

[30] The question of whether IBM Canada and the expatriates were in an employer/employee relationship is raised on the cross-appeal and not on the appeal itself. I will, however, address that question first because, in my view, the relationship of the parties is an important consideration in determining whether the payments made by IBM Canada constitute "remuneration paid" to the expatriates. That is the question raised on the appeal.

[31] The definition of the words "employer" and "employee" in the Act do not suggest that either word is used in any specialized or artificial sense. Rather, the definitions indicate that the words take their generally accepted legal meaning as developed by the courts through the case law.

[32] In Pointe-Claire (City) v. Quebec (Labour Court), 1997 CanLII 390 (SCC), [1997] 1 S.C.R. 1015, [1997] S.C.J. No. 41, the Supreme Court of Canada was faced with statutory definitions of employer and employee not unlike those found in the Act. The issue was whether a temporary employee hired by a municipality through a personnel agency was an employee of the municipality for the purposes of the relevant labour legislation. The court rejected the argument that any one facet of the tripartite relationship among the worker, the personnel agency, and the municipality was determinative of whether the worker was an employee of the municipality. Instead, the court undertook what it called a [page650] "comprehensive" examination of a variety of factors touching on the relationship among the three parties. The court held that all of the factors had to be considered in deciding whether an employer/employee relationship existed.

[33] Like Campbell J. (at paras. 26-29), I think the comprehensive approach taken in Point-Claire applies to the determination of whether IBM Canada and the expatriate are in an employer/employee relationship for the purposes of the Act. I also agree with his further observation (at para. 34) that the existence of employer/employee features in the relationship between the foreign affiliate and the expatriate does not necessarily mean that there is no employer/employee relationship between IBM Canada and the expatriate. No risk of double taxation under the Act arises in the circumstances of this case.

[34] A review of all of the factors relevant to the ongoing relationship between IBM Canada and the expatriate leaves no doubt that their relationship is one of employer and employee while the expatriate is on assignment abroad. Having read the extensive international assignment documentation prepared by IBM Canada, I think IBM employees and personnel managers would be very surprised at any suggestion that an expatriate ceases to be an employee of IBM Canada when he or she goes on a temporary assignment abroad. In addition to the overall tenor of that documentation, I rely on the following specific factors.

[35] Both before and after the assignment, the expatriate is in every sense of the word an employee of IBM Canada. The assignment is temporary and for a fixed period. From the outset, the intention is that the expatriate will return to IBM Canada and IBM Canada will reintegrate the expatriate into its operation.

[36] The foreign affiliate is no stranger to the employer/ employee relationship between the expatriate and IBM Canada. There is an obvious and close corporate connection between the foreign affiliate and IBM Canada. The expatriate remains within the IBM Canada family when he or she goes on temporary assignment abroad.

[37] The contractual relationship whereby the expatriate provides services to the foreign affiliate in exchange for wages and other benefits is exclusively between the expatriate and IBM Canada. The expatriate would have no contractual claim against the foreign affiliate for any breach of the conditions and terms of the letter of assignment. Nor would the foreign affiliate have a claim in contract against the expatriate for any breach of the terms of that letter. Specifically, IBM Canada assumes the responsibility to pay the expatriate's wages, bonuses and other [page651] benefits. The foreign affiliate's promise to reimburse IBM Canada for those payments in no way diminishes IBM Canada's direct obligation to the expatriate.

[38] Not only does IBM Canada remain directly responsible to the expatriate for payment of wages and other benefits, IBM Canada retains a large measure of control over the amount of remuneration paid to the expatriate while he or she is working abroad. The salary paid to the expatriate and the actual amount of any bonuses are both determined by IBM Canada's salary bands and payout schedules.

[39] Several other terms of the foreign assignment further confirm the ongoing employer/employee relationship between the expatriate and IBM Canada. The expatriate continues to participate in IBM Canada's pension, medical, dental and stock option plans. Canada Pension Plan contributions are made on behalf of the expatriate while he or she is abroad. Any termination of employment while on foreign assignment is ultimately in the hands of IBM Canada, and any severance package is the responsibility of IBM Canada.

[40] As I understand IBM Canada's argument, it does not dispute the assertion that a comprehensive consideration of the factors that define the relationship between IBM Canada and the expatriate compels the conclusion that their relationship was one of employer and employee. Rather, IBM Canada argues that the definition of employee in the Act limits consideration to one factor only -- does the expatriate, while on foreign assignment, provide services to IBM Canada? On IBM Canada's argument, if no services were provided by the expatriate to IBM Canada, the expatriate could not for the purposes of the Act be the employee of IBM Canada regardless of the actual nature of their relationship. IBM Canada submits that the expatriate provides services exclusively to the foreign affiliate.

[41] This argument rests on the definition of employee found in the Act prior to certain amendments, that came into force December 5, 2001 (S.O. 2001, c. 23, s. 71(2)). Prior to those amendments, an employee was defined as "an individual employed by and in the service of an employer". The amendments deleted the words "in the service of". Since it is agreed that the 2001 amendments that eliminated the phrase "in the service of" did not alter the substance of the definition, counsel for IBM Canada reasons that the requirement that the individual be in the service of the employer remains a prerequisite to a finding of an employer/employee relationship under the Act.

[42] I cannot accept this method of statutory interpretation. Counsel's argument requires that the words deleted from the [page652] statute in 2001 be read back into the statute and be used to limit the scope of the words left in the statute after the 2001 amendments. The parties agreed, both before Campbell J. and on appeal, that the 2001 amendments did not alter the substance of the definition of employee in the Act. I come to the same conclusion. It must follow that the deleted phrase "in the service of" added nothing to the words "employed by" left in place after the amendment. The words in the statute and not the words removed from the statute control the interpretation to be given to the statute.

[43] I would add that even were I to accept IBM Canada's argument as to the reading of the statute, I should not be taken as necessarily agreeing with the submission that the expatriate does not provide services to IBM Canada while working for the foreign affiliate. The expatriate goes on assignment with the consent of, and perhaps at the request of, IBM Canada. Presumably, the assignment program in which IBM Canada participates benefits IBM Canada. It is arguable that the expatriate does perform a service for IBM Canada when he or she goes on assignment to work for the foreign affiliate. I need not decide that issue.

(ii) The appeal: Does IBM Canada pay remuneration?

[44] In holding that although IBM Canada was in an employer/ employee relationship with the expatriates, it did not pay remuneration to them, Campbell J. focused on two things:

-- The economic burden of payments to the expatriates was ultimately borne by the foreign affiliate; and

-- While on assignment, the expatriate performed services exclusively for the foreign affiliate and the foreign affiliate was the primary beneficiary of those services.

[45] In challenging the ruling below, counsel for the Minister presented an intricate argument that drew a distinction between the meaning of the word "remunerate", which is not used in the Act and the phrases "pays remuneration" and "remuneration paid" which are found in the Act. Counsel submits that the word "remunerate" may invite some consideration of who bears the ultimately economic burden of the payments but that the phrases used in the Act, "pays remuneration" and "remuneration is paid", speak only to the bare act of payment. Counsel submits that Campbell J. erred in effectively substituting the word "remunerate" for the phrases actually used in the Act. [page653]

[46] Counsel's arguments invite a syntaxian subtlety that is beyond my ability. I see no essential difference between the verb "remunerate" and the phrases used in the Act. All connote payment in exchange for something. I do, however, agree with counsel for the Minister's interpretation of those phrases.

[47] In arriving at the correct meaning of the phrases "pays remuneration" and "remuneration paid" as used in the Act, it is of fundamental importance that the phrases are used in the context of an ongoing employer/employee relationship. As counsel for the Minister submitted, there can be payments made that are remunerative in nature that are not made in the context of an employee/employer relationship. For example, a company may provide a payroll service whereby it serves as a conduit of funds from the employer to the employee. While it may be that the payroll company remunerates the employee in a literal sense of the word, there is clearly no employer/ employee relationship between the payroll company and the employee. Consequently, the payment could not be caught by the Act. Used in the context of an ongoing employer/employee relationship, I think the phrases "remuneration paid" and "pays remuneration" capture moneys paid by an employer to an employee pursuant to the employer's contractual obligations to the employee to pay for services provided by the employee. For the reasons set out above, the payments made by IBM Canada into the expatriate's bank account are payments made in the context of an ongoing employer/employee relationship and pursuant to IBM Canada's contractual obligation to the expatriate. The payments consist of wages and bonuses paid in return for services rendered by the expatriate.

[48] I cannot agree that identity of the primary beneficiary of the services provided by the expatriate alters the remunerative character of the payments. For example, an employer may direct its employee to provide services to a third party for a specified time perhaps in response to an emergency. When the employer pays its employee for the period covered by that temporary assignment, the employer "pays remuneration" despite the fact the third party was the direct and primary beneficiary of the services provided during that work period.

[49] I must also reject the submission that because the foreign affiliate bears the ultimate economic burden of the payment, it cannot be said that IBM Canada "pays remuneration" to the expatriate. The nature of the payment does not turn on the ultimate source of the funds. For example, there may be government programs which compensate employers for wages paid to employees in certain circumstances. In those cases, the government bears the ultimate economic burden of the payment. I would not [page654] think, however, that the existence of these programs would mean that the employer who pays the employee's wages is not paying remuneration to the employee. By imposing a tax based on "remuneration paid" in the context of an employer/ employee relationship, the Act looks to the nature of the payment as between the employer and the employee and not to the source of the funds or to any arrangement which may exist between a third party and the employer for reimbursement.

[50] The foreign affiliate's roles as the ultimate bearer of the economic burden and the beneficiary of the services provided, speak not to the nature of the payments made by IBM Canada but to whether IBM Canada remains in an employer/ employee relationship with the expatriate. Those two factors might suggest that the relationship does not continue. However, for the reasons set out above, a comprehensive review of all of the relevant factors, including but not limited to those two, compels the conclusion that IBM Canada does remain in an employer/employee relationship with the expatriate.

V Conclusion

[51] I would allow the appeal, set aside the judgments of Campbell J., and substitute judgments dismissing the appeal from the Minister's assessment and dismissing IBM Canada's application for declaratory relief. The Minister should have its costs of the proceedings before Campbell J. in the amounts fixed by him. The Minister should have his costs of the appeal and cross-appeal in the amount of $15,000, inclusive of disbursements and GST.

Appeal allowed; Cross-appeal dismissed.

Notes

Note 1: It is interesting to note that the expatriate is advised that while IBM Canada's medical plan continues to apply to the expatriate, that plan requires the expatriate to look first to OHIP for payment of any medical expenses that may arise in the foreign jurisdiction. IBM Canada's medical and dental plans will not cover may medical services payable by OHIP. The expatriate is advised to contact OHIP to determine what coverage he or she has while working abroad.

Note 2: In para. 48 of his reasons, Campbell J. appears to hold that both subsections require that the employee be "at a place of work" of the employer. It does not seem that this obervation played any role in this analysis. I do not read subsection (b) that way.