14 September 2004 GST/HST Interpretation 48049 - GST/HST Treatment of Interchange Fee

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.

Dear XXXXX:

Thank you for your letter XXXXX (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the services you provide.

According to the enclosed services contract, the parties to the contract are XXXXX having offices at XXXXX and XXXXX.

Under the contract with the XXXXX Company, you bill (on a per hour basis) for the services you render in accordance with the contract terms. The substantive part of the work is performed in XXXXX (XXXXX%) and the remainder is performed in XXXXX (XXXXX%).

You do not rent or own office space in XXXXX. Scheduled meetings are held at either the plant sites or the corporate headquarters of the XXXXX Company.

Interpretation Requested

Should you charge the HST or the GST on services rendered on a self-employment basis to the XXXXX Company?

Interpretation Given

A taxable (other than zero-rated) supply made in Canada is subject to the GST at 7%, or HST at 15% if made in a participating province (New Brunswick, Newfoundland and Labrador, and Nova Scotia ).

Paragraph 142(1)(g) of the Excise Tax Act (ETA) deems a supply of a service to be made in Canada if the service is, or is to be, performed in whole or in part in Canada.

Section 144.1 of the ETA deems a supply to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX to the ETA, made in the province.

Paragraph 2(a) of Part V of Schedule IX to the ETA deems a supply of a service to be made in a province if all or substantially all (90% or more) of the Canadian element (Section 1 of Part V of Schedule IX of the ETA defines the "Canadian element" of a service as the portion of the service that is performed in Canada.) of the service is performed in that province. For purposes of this paragraph, please note that the province in which the recipient of your supply is located (the province of XXXXX in this case) is not the determinative factor, but rather the province in which your service is performed.

Where all or substantially all of the Canadian element of the service is not performed in a particular province as described above, the supply of the service may also be deemed to be made in the particular province, pursuant to paragraph 2(b) of Part V of Schedule IX, if the place of negotiation for the supply is in the province, and all or substantially all of the service is not performed outside that province.

Pursuant to section 1 of Part I of Schedule IX, the "place of negotiation" of a supply means the location of the supplier's permanent establishment at which the individual principally involved in negotiating for the supplier the agreement for the supply ordinarily works, or to which that individual ordinarily reports, in the performance of the individual's duties in relation to the activities of the supplier in the course of which the supply is made and, for the purposes of this definition, "negotiating" includes the making or acceptance of an offer.

Subsection 132.1(2) of the ETA defines a permanent establishment for purposes of the place of supply rules set out in Schedule IX. Generally, the meaning of permanent establishment in the case of an individual, is as defined in the Income Tax Regulations [subsection 2600(2)] under the Income Tax Act, as follows:

"permanent establishment" means a fixed place of business of the individual including an office, a branch, a mine, an oil well, a farm, a timberland, a factory, a workshop or a warehouse, and

(a) where an individual carries on business through an employee or agent, established in a particular place, who has general authority to contract for his employer or principal or who has a stock of merchandise owned by his employer or principal from which he regularly fills orders which he receives, the individual shall be deemed to have a permanent establishment in that place;

(b) where an individual uses substantial machinery or equipment in a particular place at any time in a taxation year he shall be deemed to have a permanent establishment in that place; and

(c) the fact that an individual has business dealings through a commission agent, broker, or other independent agent or maintains an office solely for the purchase of merchandise, shall not of itself be held to mean that the individual has a permanent establishment.

Based upon the provided information it does not appear that there is a fixed place of business of the service supplier in XXXXX for purposes of determining the place of negotiation. Rather, in this case it appears that the supplier's permanent establishment at which the individual principally involved in negotiating the agreement for the supplier ordinarily works is in XXXXX.

Therefore, the place of supply of the service to the XXXXX Company is deemed made in XXXXX under paragraph 2(b) of Part V of Schedule IX as the place of negotiation of that supply is in XXXXX and all or substantially all of the services are not performed outside XXXXX. The supply of the service would consequently be subject to HST at 15%.

The foregoing comments represent our general views with respect to the subject matter of your letter. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8220.

Yours truly,

Kevin W. Smith
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2004/09/03 — RITS 48298 — Supply of Services to a Non-resident