What does economic employer mean and why does my host country care?
It asks who in substance employs you rather than whose name is on the contract: who directs the work, who bears its cost, who carries the risk of the result, and who decides the tools, the hours and the place. A host country applying that test can conclude the local entity you work alongside is your employer for treaty purposes, even though you are contracted to and paid by a company abroad. The consequence is host-country taxation from the start of the work.
Can the economic employer test remove my treaty exemption for short assignments?
Yes, and that is usually how it surfaces. The short-stay relief in the employment article generally depends on the remuneration not being borne by an employer in the host country. If the host entity is treated as the employer in substance, because it directs the work and effectively bears its cost whether or not it is invoiced, the condition fails and the relief goes with it however few days were spent there. The day count is then beside the point.
Who is my employer if I work for a group company abroad?
There can be two answers and both can be correct. The legal employer is the entity you have a contract with and which pays you. The economic employer is the entity that in substance uses and directs your work and bears its cost. A host country applying the substance test looks at the second. Where the two differ, expect a host-country withholding and reporting obligation to attach to the local entity, and expect to be asked for evidence of how the work was actually directed.
What evidence shows who the economic employer really is?
Contemporaneous records of how the work was run, not the intercompany agreement on its own. Who set the tasks and approved the output, whose systems and premises were used, whose materials and equipment, who could stop the work, how absence and performance were handled, and how the cost was recharged if it was. A recharge agreement helps and does not decide the question. What defeats a position most often is that nobody kept any of this while the work was still being done.
Does a recharge between group companies decide who the economic employer is?
It is evidence, not the answer. A recharge shows the host entity bearing the cost, which points one way. The absence of a recharge does not show that it is not bearing the cost, because a host country can find the cost effectively borne where the work is done for the host entity's own business and the results accrue to it. Treat the recharge as one of several facts to line up, and expect the direction of the work to carry more weight.
How do we stop the economic employer test catching our business travellers?
Decide it before the travel rather than after. That means classifying each trip by what the traveller will actually do, whether they are performing services for the host entity or attending on behalf of their own, recording who directs the work, holding intercompany arrangements that match the practice, and fixing the withholding position for the trips where the test is likely to be met. Positions written after an authority asks are built from whatever records happen to have survived.
Do Canada and the United States share tax information?
Yes, through more than one channel. The treaty has an exchange-of-information article that supports both routine and on-request exchange. Separately, an intergovernmental agreement has Canadian financial institutions identify US-reportable accounts and report them to the CRA, which passes them to the IRS, with the reverse flow for Canadian residents. Most other country pairs use the Common Reporting Standard for the same purpose. See FATCA reporting.
Which country do I pay tax to first?
Generally the source country — where the income arises — taxes first, often by withholding before you receive it. Your country of residence then taxes the same income and credits what the source country took. That order is why timing matters: a residence-country return filed before the source-country tax is settled has nothing to credit yet. Getting the sequence right is most of the work. See international tax planning.
