File: 11995-4
XXXXX
XXXXX February 13, 1995
I refer to discussions you had with a member of my staff, namely, Tom Alley, Tax Policy Officer, and the information provided in the seminar in your office on December 16, 1991 regarding inbound freight transportation.
Your enquiry concerned a referral from XXXXX , in which a non-resident publisher solicits orders in Canada for the sale of magazines and periodicals. The magazines are packed in boxes which are labeled with the subscibers' addresses and are shipped by air to the XXXXX . X Ltd., a registered local delivery company, then picks up the boxes with the air bill at the airport. Because it is impractical for the U.S. publisher to ship items individually or the for the air cargo company to have one air bill for each individual subscriber, the air bill specifies X Ltd. as the consignee and X Ltd.'s address as the destination. The U.S. publisher does not issue any bill of lading. With the information on the box labels, X Ltd. then delivers the goods to various subscribers in the XXXXX area.
I understand that in your discussions with Tom Alley you further clarified the situation by stating the addresses of the subscribers are not shown on the outside of the box. There is only a reference to another listing. The other listing is the address labels on the magazines.
The concern is that the definition of destination in VI/VII/1(1) to the Excise Tax Act implies that the inbound continuous freight movement stops at X Ltd.'s address and any subsequent delivery services are no longer part of the continuous freight movement. Under this interpretation, X Ltd. should be charging GST to the U.S. publisher because X Ltd. is named as the consignee on the air bill.
During your discussions with Tom Alley you were given the opinion that the interpretation above was correct. However, after reviewing the case, I would like to amend the information you were given.
Subsection 1(1) of Part VII of Schedule VI to the Excise Tax Act (ETA) states that "destination", in respect of a continuous freight movement of property, means a place specified by the shipper of the property where possession of the property is transferred to the person to whom the property is consigned or addressed by the shipper, ... (my emphasis added).
Consigning or addressing by the shipper gives larger scope for documentary evidence than if the definition were to use the word consigning alone or use the conjunctive word "and". I understand that there is no delay or further alteration of the magazines by X Ltd. so there is no interruption in the freight movement.
Section 10 of Part VII of Schedule VI to the ETA describes what would qualify as a zero-rated supply "where the supplier of the service maintains documentary evidence satisfactory to the Minister that the service is part of a continuous freight movement from an origin outside Canada to a destination in Canada)."
Even though the addresses of the individual subscribers may not be on the outside of the box, as long as there is sufficient evidence linking the freight movements then the delivery service provided by X Ltd. qualifies for zero-rating under section 10 of Part VII of Schedule VI.
The supplier must provide evidence satisfactory to the auditor to show that the inbound continuous freight movement included the domestic portion of the freight transportation service. Although it is for Audit Policy and Procedures to specify what documents auditors should seek, from a GST policy perspective, examples of documents which might exist include a contract between the U.S. publisher and X Ltd. showing that X Ltd. was responsible for the domestic leg of the inbound freight transportation movement for each issue of the magazine or a current list of subscribers maintained by X Ltd.
At the time Tom Alley was presented with the above case, he was given the original memorandum, dated December 9, 1994, from the AUM to you requesting a ruling. I am enclosing that letter so that it can be put in the registrant's file where it belongs.
I am sorry for any inconvenience this may have caused. If you have any questions or comments, please do not hesitate to contact Tom Alley, Tax Policy Officer, at (613) 952-9218.
Tony D'Abramo
Manager, Services Unit
Tax Policy - Special Sectors
GST Policy and Legislation
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Adam Belyea
Tom Alley |
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