Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
Case Number: 103662
XXXXX
November 26, 2008
Dear XXXXX:
Subject:
GST/HST INTERPRETATION
Supply of XXXXX in Canada by a non-resident person
Thank you for your XXXXX of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a supply of XXXXX made by a non-resident supplier.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
Based on the information in your XXXXX, our subsequent telephone conversations and XXXXX we understand the following:
ACO is a non-resident non-registrant XXXXX that supplies XXXXX by way of sale to XXXXX in Canada.
There are two distinct methods by which XXXXX are supplied to the XXXXX:
Scenario #1
XXXXX is sold to a XXXXX with the following delivery term, FOB (foreign port). The XXXXX is responsible for importing the XXXXX into Canada (i.e., XXXXX arranges for transportation and shipping of the XXXXX from the foreign port, insurance, and acts as importer of record).
Scenario #2
XXXXX that is manufactured in Canada is acquired by ACO and sold to a XXXXX upon receipt of a purchase order from XXXXX. ACO purchases XXXXX from BCO, a registered non-resident corporation who acquires XXXXX from its Canadian subsidiary, ACCO, a separately incorporated entity that is registered for purposes of the GST/HST.
SCO, a Canadian manufacturer, under an agreement with ACCO manufactures XXXXX in Canada. XXXXX. XXXXX. Throughout this process, ACCO is the copyright holder and owner of all stock in the XXXXX. ACCO maintains the inventory of XXXXX in the XXXXX and only supplies XXXXX to BCO upon receipt of an order. The XXXXX that is supplied by ACO to the XXXXX is shipped directly from XXXXX to XXXXX pursuant to agreement between ACO and BCO.
In either scenario, the purchase order for XXXXX is placed through PCO, a XXXXX agent that is registered for purposes of the GST/HST, and that is owned in part by ACO XXXXX. XXXXX submit the purchase an order to PCO who places the order with ACO and ensures that the order is filled. PCO does not take possession or title to the products and is not party to the transaction between ACO and XXXXX.
In addition to the above, PCO provides advertising services to ACO in respect of the XXXXX sold in Canada or into Canada by ACO. Generally PCO communicates with ACO to determine the scope, nature and budget for the advertising, marketing and promotion programs. PCO will then contract in its own name with service providers for the following:
• the provision of technical advice on design of marketing research;
• to conduct market research, surveys and pilot projects;
• program design;
• the provision of artwork, graphic arts, lithography, photography, printing, sound and film art work;
• the provision of multi-media advertising (e.g. on-air advertising on television and radio, advertising space in Canadian edition magazines and newspapers, and advertising using flyers/inserts, billboards and murals; and
• promotional items XXXXX.
PCO contributes its own services such as overseeing and managing the advertising program, monitoring cost and results and reporting back to ACO. PCO pays the service providers for the services they provide and it claims input tax credits for the GST/HST it pays.
Ruling Requested
You've requested confirmation of the following:
1) The supply of XXXXX by ACO to thXXXXX is deemed to be made outside of Canada and therefore is not subject to the GST/HST.
2) Canadian customers are not required to provide a drop-shipment certificate to ACO for the supply of the XXXXX by ACO.
3) The services of soliciting and acting to facilitate the supply of goods by ACO to XXXXX provided by PCO are zero-rated supplies for purposes of the GST/HST.
Interpretation Given
We are unable to provide a GST/HST Ruling as requested as the documentary requirements for providing a ruling as outlined in GST/HST Memorandum 1.4 - Excise and GST/HST Ruling and Interpretation Service have not been satisfied. Instead, we are pleased to offer the following GST/HST Interpretation of the applicable provisions of the ETA to assist you with the application of the tax to the described transactions.
Pursuant to paragraph 142(1)(a) of the ETA, a supply by way of sale of tangible personal property (TPP) is deemed to be made in Canada (subject to sections 143, 144 and 179) if the TPP is, or is to be, delivered or made available in Canada to the recipient of the supply. Alternatively, a supply by way of sale of TPP is deemed to made outside Canada, pursuant to paragraph 142(2)(a) of the ETA, if the TPP is, or is to be, delivered or made available outside Canada to the recipient of the supply.
For purposes of paragraphs 142(1)(a) and 142(2)(a) of the ETA, the phrase "delivered or made available" has the same meaning as that assigned to the concept of "delivery" under the law of the sale of goods, as follows:
• "Delivered" refers to those situations where delivery of the TPP under the applicable law of the sale of goods is affected by actual delivery.
• "Made available" refers to those situations where delivery of the TPP under the applicable law of the sale of goods is affected by constructive delivery (i.e., actual physical possession of the TPP is not transferred to the recipient of the supply yet is recognized as having been intended by the parties and as sufficient in law). For example, situations arise where a person sells TPP to another person and agrees to hold the property as bailee for the buyer.
The place where the TPP is delivered or made available may be determined by reference to the place where the TPP is considered to have been delivered under the law of the sale of goods applicable in that case. However, if delivery terms are specified in a contract, then generally, subject to any evidence to the contrary, the place where the TPP is delivered or made available can be determined by reference to the terms of that contract.
When an Incoterm has been used in an agreement/purchase order/contract (not necessarily contained within a specific "delivery" clause) in accordance with its intended circumstances (such as set out under Incoterms 2000), that Incoterm will generally, subject to any evidence to the contrary, be used to dictate where the TPP is delivered or made available for the purposes of section 142 of the ETA. For example, if goods are supplied to a recipient FOB (foreign port - e.g., Scotland), as is the case in the first scenario, the CRA considers that the goods have been delivered or made available outside of Canada. Pursuant to paragraph 142(2)(a) of the ETA, the supply of the goods is deemed to be made outside of Canada and therefore not subject to the GST/HST.
In the second scenario where ACO acquires goods in Canada for sale and delivery to recipients in Canada the question of where the supply is made depends on whether the non-resident is considered to be carrying on business in Canada at the time the supply is made. As previously explained, paragraph 142(1)(a) deems a supply of goods to be made in Canada if the goods are delivered or made available in Canada. However, if the supply is made by a non-resident person, subsection 143(1) deems that supply to be made outside of Canada unless the non-resident is registered or is carrying on business in Canada.
The determination of whether a non-resident person is carrying on business in Canada for GST/HST purposes can only be made after consideration of all the relevant facts pertaining to all supplies or activities of the non-resident in Canada. The following are a list of factors the Canada Revenue Agency considers when determining whether a non-resident is carrying on business in Canada for GST/HST purposes:
• the place where agents or employees of the non-resident are located;
• the place of delivery;
• the place of payment;
• the place where purchases are made or assets are acquired;
• the place from which transactions are solicited;
• the location of assets or an inventory of goods;
• the place where the business contracts are made;
• the location of a bank account;
• the place where the non-resident's name and business are listed in a directory;
• the location of a branch or office;
• the place where the service is performed; and
• the place of manufacture or production.
The importance or relevance of a given factor in a specific case depends upon the nature of the business activity under review, and, as always, the particular facts and circumstances of each case. Generally, a non-resident must have a significant presence in Canada to be considered to be carrying on business in Canada.
The factors that are indicative of ACO carrying on business in Canada are: solicitation, acquisition and delivery of goods in Canada. These factors are sufficient to conclude that ACO is carrying on business in Canada for GST/HST purposes. Please see GST/HST Policy Statement P-051R2: Carrying on Business in Canada, for more information on this topic. Therefore subsection 143(1) would not apply to deem the supplies by ACO in this scenario to be made outside of Canada. The supply of the goods would be therefore deemed to be made in Canada by virtue of subsection 142(1).
A non-resident person who carries on business in Canada is required to register and to charge the GST on taxable supplies made in Canada. In addition to the requirement to collect and remit tax, the non-resident is entitled to claim input tax credits for GST paid on goods and services acquired in Canada for consumption, use or supply in the course of its commercial activities. For example, the tax that is charge by BCO to ACO on the supply of XXXXX is recoverable by ACO as an input tax credit.
It is important to note that the drop-shipment provisions in section 179 are not relevant in a case such as this when a non-resident is required to be registered for purposes of the GST/HST, as is the case with ACO.
Advertising Services
The term "advertising" is not defined in the ETA. However, the Canada Revenue Agency has provided an explanation as to what is generally considered to be an advertising service for GST/HST purposes in paragraphs 26 and 27 of GST/HST Memorandum - 4.5.3 Exports - Services and Intellectual Property.
An advertising service is generally considered to be a service of creating a message and/or a service directly related to the communication of such a message. Further, the message must be oriented towards soliciting business, attracting donations, or calling public attention in the form of an information notice, a political announcement or other similar communication.
There are occasions when the person communicating a message will not be the same person creating or supplying the message. Generally, the person supplying the broadcast or communication service will be in possession of the message or will have received sufficient information as to the content of the message prior to the supply of the service to know that the message is in the nature of advertising. In these situations, the supply of the broadcast or communication service will be considered to be a supply of an advertising service.
PCO acquires various elements (e.g. artistic design, advertising space) for the creation of an advertising or promotional program which it supplies to ACO. The supply of an advertising service made to a non-resident person is zero-rated under section 8 of Part V of Schedule VI to the ETA but only, if the non-resident is not registered for purposes of the GST/HST. If the non-resident is registered for the GST/HST the supply of the advertising service may instead be zero-rated under section 7 of Part V of Schedule VI, subject to the exclusions in that section.
Arranging for, Procuring or Soliciting Orders for Supplies
PCO acts as the clearinghouse for the orders placed by XXXXX; it receives the purchase orders from XXXXX, conveys the information to ACO, and ensures that the orders are filled. Generally, a supply of this nature that is made in Canada is taxable at 5% or 13% depending on whether the supply is made in a participating province. If the supply is made to a non-resident person, the supply may be zero-rated (taxable at 0%) provided that the conditions for zero-rating in section 5 of Part V of Schedule VI are met.
Section 5 zero-rates a supply made to a non-resident person of acting as agent of the person, or of arranging for, procuring or soliciting orders for supplies by or to the person, where the service is in respect of a supply that is zero-rated by some other provision of Part V of Schedule VI, or a supply that is made outside of Canada by or to the person. The supply of XXXXX by ACO may either be made outside of Canada as is the case in the first scenario or the supply may be made in Canada as is the case in the second scenario. It appears, that the supply of the service (i.e. arranging for, procuring or soliciting orders) provided by PCO would not qualify for zero-rating as it relates to a supply of goods made in Canada by a non-resident supplier.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
The aforementioned publications can be accessed on-line at the Canada Revenue Agency Web site at www.cra-arc.gc.ca.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-7841. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Dwayne Moore
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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