GST/HST Rulings and Interpretations
Place Vanier, Tower C, 9th Floor
25 McArthur Avenue
Vanier, Ontario K1A 0L5
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XXXXX
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File: 11640-3(glr)
XXXXX Case: HQR0001178
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Subject:
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GST/HST INTERPRETATION
Cross-Border Reimbursement of Expenses
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Dear XXXXX
I refer to your facsimile message of May 8, 1998, our subsequent telephone conversations, and your telephone conversations with Mr. M. Boivin, A/Manager, Border Issues Unit, concerning the application of the Goods and Services Tax (GST) to the reimbursement of expenses by a U.S. parent to its Canadian subsidiary.
The following facts were provided in your letter:
1. Canco is a Canadian corporation engaged exclusively in commercial activities and is registered for GST/HST purposes.
2. Canco is wholly-owned by a U.S corporation (USco).
3. USco does not carry on business in Canada and is not registered for GST/HST purposes.
4. At one time, Canco was a public corporation. The majority of the shares were held by USco and some of the shares were owned by Canadian investors.
5. Canco engaged in a share buyback program whereby it repurchased the shares held by the Canadian investors with the intention of going private.
6. Canco incurred various expenses in Canada relating to the share acquisition program, including, legal, accounting and printing costs. These expenses were all subject to the GST.
7. USco agreed to reimburse Canco for the aforementioned expenses.
8. Canco made an intercompany charge to USco for these costs, without any mark-up, in 1995.
Interpretation Requested
Was the reimbursement of the legal, accounting and printing costs by USco to Canco subject to the GST at 7%?
Interpretation Given
In order for the reimbursement of the costs to have been subject to the GST, the reimbursement must have been consideration for the supply of property or a service. However, from the information provided, it is not clear if Canco did or did not make a supply of a service to USco.
If there was no supply, the reimbursement would not have been regarded as consideration for a supply and, as a result, there would not have been any tax implications.
On the other hand, it may be that USco directed Canco to institute the share buyback program. If this was the case, the reimbursement would have been regarded as consideration for the supply of a service (i.e., a service of administering the share buyback program). However, the supply of the service would probably have qualified for zero-rating (i.e., subject to the GST at 0%) under the provisions of Schedule VI, Part V, section 7 to the Excise Tax Act (Act) as it read prior to July 1, 1996. The service would not have been regarded as primarily for the consumption, use or enjoyment in Canada by USco.
The foregoing comments represent our general views with respect to the subject matter of your letter. Unannounced or future amendments to the Act may result in changes to this interpretation. 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) 952-6743.
Yours truly,
Garry L. Ryhorchuk
Senior Rulings Officer
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate
Legislative References: Sections 123 and 165
H.Q. letter dated 961119 (HQR-358) to XXXXX
H.Q. letter dated 921105 (File: 11650-1(gjor)) to XXXXX
GST Q&As Nos. 4a.82, 4d.27
Policy Statement P-180 issued 950816
GST Memorandum 300-5
NCS Subject Code: 11640-3
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