Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX K1A 0L5
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Subject:
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GST/HST INTERPRETATION
Non-Resident Security Requirement
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Dear XXXXX
Thank you for your letter of May 7, 1998 (with attachments) addressed to XXXXX of our XXXXX Regional Office, concerning the waiver of the GST security requirements.
Interpretation Requested
Can the GST security requirements be waived if XXXXX has a wholly owned subsidiary in Canada, namely XXXXX which operates independently from its xx parent.
Interpretation Given
Based on the information provided and in consideration of our current policy and the application of the Excise Tax Act (the Act) as it is written, XXXXX must provide and maintain security, in spite of the existence of XXXXX, an independent wholly owned Canadian subsidiary.
Subsection 240(6) of the Act provides that, in the case of an application for registration for GST/HST purposes by a non-resident person who does not have a "permanent establishment" in Canada, security has to be posted and maintained by the applicant in an amount and form satisfactory to the Minister, to ensure that the person will pay the GST/HST when the person is the recipient of a taxable supply made in Canada and remit net tax as required under the Act.
The term "permanent establishment" not only includes a fixed place of business of a particular person (i.e., a division or branch) through which the particular person makes supplies, but also a fixed place of business of another person who acts in Canada on behalf of the particular person. However, for purposes of subsection 240(6) of the Act, the term "permanent establishment" is qualified to exclude a fixed place of business of another person who acts in Canada on behalf of a non-resident. Therefore, a non-resident person may be exempted from providing security only if the non-resident make supplies through its own fixed place of business in Canada.
As mentioned in your request for waiver, XXXXX although wholly owned by XXXXX operates independently from its xx parent, has its own management team, its own customers and its own financial records, all of which are in Canada. In consideration of the above, it appears that XXXXX does not make supplies through its own fixed place of business in Canada. As such, XXXXX does not have a permanent establishment in Canada.
Under the circumstances, the security requirements, pursuant to subsection 240(6) of the Act apply to you as a registered non-resident person. Accordingly, you must provide and maintain security in an amount and form satisfactory to the Minister. For your information, please find enclosed a copy of draft Policy Statement P-201 which outlines the Department's current position in regards to the amount of security to be provided.
The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed 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 contact me at (613) 957-8220.
Yours truly,
Daniel E.B. Chamaillard
Senior Rulings Officer
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate
Encl.: P-201
XXXXX:
Your transfer request was based on the absence of policy relating to paragraph (b) of the definition of "permanent establishment". For purposes of the security requirements, pursuant to subsection 240(6), there would be no need to develop a policy in respect of the definition of part (b) of "permanent establishment". Subsection 240(6), as amended, is quite clear as to whom shall provide security.
We have taken the liberty of responding to the client in view of the necessity of having XXXXX provide security. It is suggested that you contact the client to determine if XXXXX should in fact be registered (is it required to be registered?, are supplies made to XXXXX deemed to be made outside Canada? and is XXXXX the importer of the goods?). The answer to these questions may result in changes to the transactions as between XXXXX and XXXXX[.]
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