27 July 1998 GST/HST Interpretation HQR0001088 - Telephone Calls Charged to Passengers on Foreign-owned Aircraft

                                                                        GST/HST Rulings and Interpretations
  Directorate
Place Vanier, Tower C, 9th Floor
25 McArthur Avenue
Vanier, Ontario
XXXXX                                                                                 K1A 0L5

                                                                        July 27, 1998

Dear XXXXX:

I refer to your letter of February 27, 1998, and our telephone conversation of June 11, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to telephone calls made by passengers on board foreign-owned aircraft.

The following background and facts were presented:

•   ABC company ("ABC") charges passengers on foreign-owned aircraft for telephone calls handled by certain ground stations which ABC operates. Some of these ground stations are located in Canada;

•   the aircraft is operated by a person in the course of a business of supplying passenger transportation services;

•   a telephone call may be placed by a passenger on a foreign-owned aircraft while the aircraft is on the ground or over the territory of a country other than Canada, or is on the ground or over the territory of Canada;

•   the telephone call may be transmitted through a ground station located in a country other than Canada, or through a ground station located in Canada;

•   the telephone call may terminate in a country other than Canada, or in Canada;

•   the charge for the telephone call is billed by ABC to the passenger's credit card (and, as such, ABC has no knowledge of the passenger's residence);

•   ABC does not have, and is not able to obtain, any knowledge as to the location of the aircraft when the telephone call is placed while the aircraft is airborne, e.g., the aircraft could be over foreign soil and the call could still transmit via a Canadian ground station;

•   passengers billed by ABC in respect of telephone calls handled by Canadian ground stations are on international flights (i.e., flights that either originate and/or terminate outside Canada), or on flights that neither originate nor terminate in Canada[;]

•   ABC currently operates ground stations (which constitute a permanent establishment for income tax purposes) at various Canadian locations and would appear to make supplies through such locations. As a result, it appears to you that ABC is "carrying on business in Canada" for GST purposes;

•   ABC is currently registered for GST/HST.

Interpretation Requested

You requested confirmation that,

1. charges made by ABC to passengers on international flights (i.e., flights that either originate and/or terminate at a point outside Canada) for telephone calls transmitted via a Canadian ground station are not subject to the GST/HST as the services are deemed to be made outside Canada, pursuant to subsection 180.1(2) of the Excise Tax Act ("the Act");

2. charges made by ABC to passengers on domestic flights (i.e., flights that both originate and terminate in Canada) for telephone calls transmitted via a Canadian ground station would be subject to the GST/HST as the service is deemed to be made in Canada; and

3. charges made by ABC to passengers on an aircraft engaged in a domestic flight, or leg thereof, for telephone calls which originate and terminate in a participating province would be subject to the HST as the services are deemed to be made in a participating province.

Interpretation Given

Based on the information submitted, the following interpretation is provided:

1. Supplies of telecommunication services are not deemed to be made outside Canada pursuant to subsection 180.1(2) of the Act as the supplies are not wholly performed on board the aircraft.

Telephone calls made on board an aircraft are subject to the "place of supply" for telecommunication services contained in sections 142.1 and 144.1 of the Act and in Part VIII of Schedule IX to the Act. These telephone calls, if made in Canada, would be subject to Division II tax at a rate of 7% if the telecommunication service is made in a non-participating province or at a rate of 15% if the telecommunication service is made in a participating province.

Paragraph 142.1(2)(b) of the Act provides, in part, that a supply of a telecommunication service is deemed to be made in Canada where

(i) the telecommunication is emitted and received in Canada, or

(ii) the telecommunication is emitted or received in Canada and the billing location for the service is in Canada.

Pursuant to paragraph 142.1(1)(b) of the Act, the "billing location", when the telecommunication service is not charged to a recipient's account with the supplier of the telecommunication service, is in Canada if the telecommunications facility used to initiate the service is located in Canada. Paragraph 142.1(1)(b) of the Act applies to instances where a credit card is used to pay for a telephone call.

When the telecommunications facility is permanently affixed to the aircraft, it is our view that, in this case, the facility used to initiate the call is the location of the first ground station which received the signal from the aircraft. As such, the "billing location" is in Canada if the first ground station which receives the signal from the aircraft is in Canada.

It is the Department's position that the "emission" of a telephone call made on board an aircraft is the location of the first ground station which receives the signal from the aircraft. If the first ground station is located in Canada, the telecommunication is considered to be emitted in Canada. Conversely, if the first ground station is located in a foreign country, the telecommunication would be viewed to be emitted outside Canada.

2. Please note that the provisions of the Canadian Transportation Act and the Canadian Aviation Regulations do not allow a foreign registered aircraft to operate domestic flights (i.e., flights that originate and terminate in Canada) unless a special exemption is obtained from the proper authority. Such an exemption is only provided in special circumstances and would usually require ministerial authority.

Thus, provided your enquiry relates to telephone calls made on board domestic flights of domestic aircraft, the telephone calls made on board the domestic flights will follow the place of supply rules as set out above and in sections 142.1 and 144.1 of the Act and Part VIII of Schedule IX to the Act.

3. Rules regarding telecommunication services made in a province are provided in section 144.1 of the Act and in Part VIII of Schedule IX to the Act. Supplies of telecommunication services that are deemed to be made in the participating province will be subject to the HST at 15%. Those which are deemed to be made in a non-participating province will be subject to the GST at 7%.

Pursuant to section 144.1 of the Act, a supply is deemed to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX to the Act, made in the province, but is deemed to be made outside the province in any other case. In addition, a supply made in Canada that is not made in any participating province is deemed to be made in a non-participating province.

Paragraph 2(b) of Part VIII of Schedule IX to the Act provides that the supply of a telecommunication service is made in a province if

(i) the telecommunication is emitted and received in the province,

(ii) the telecommunication is emitted or received in the province and the billing location for the service is in the province, or

(iii) the telecommunication is emitted in the province and is received outside the province and the billing location for the service is not in a province in which the telecommunication is emitted or received.

Pursuant to paragraph 1(b) of Part VIII of Schedule IX to the Act, the billing location for a telecommunication service, when the service is not charged to a recipient's account with the supplier of the service, is in a particular province if the telecommunications facility used to initiate the telephone call is in that province. It is the Department's position that in this case, when the telecommunications facility is permanently affixed to the aircraft, the telecommunications facility used to initiate the call is the location of the first ground station which receives the signal from the aircraft. As such, the billing location is in the province where the first ground station is located.

For the purpose of the above rules, a call is "emitted" in a province if the first ground station which receives the signal from the aircraft is located in that province.

The foregoing comments represent our general views with respect to the subject matter of your letter. Unannounced or future amendments to the Act, if enacted, could have an effect on the interpretation provided herein. 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 Department with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8223.

Yours truly,

Fernand Koutsimouka
A/Rulings Officer
Border issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

HQ letters:                               XXXXX Aug. 23, 1996, Doc 1715
XXXXX Doc. 60.

Canada Transportation Act, s. 61, 62
Aeronautic Act, s. 5.9
Canadian Aviation Regulations, s. 700.2, 700.7
XXXXX

                                                XXXXX Licence D'Exploitation, Office de Transport du Canada. Transporteur étranger doit être muni d'un certificat d'exploitation spéciale pour opérer domestiquement au Canada XXXXX