CRA rules that USco’s use of a Canadian affiliate for substantial marketing support for web-delivered services did not constitute carrying on business in Canada
As a small part of its business, a U.S. resident who is not registered for GST/HST purposes (“USco”) supplies information services to Canadian businesses and individuals, who subscribe by credit card through a website hosted on a U.S. web server and with the information services being delivered electronically to them from that server. USco, whose personnel for the most part do not visit Canada, will now receive expanded assistance respecting marketing to its Canadian customers from its Canadian resident affiliate ("Canco"), which heretofore has only provided it with customer address and contact information and other data. The "New Services" include most of the leg work involved in marketing including strategy development, weekly “prospecting” of accounts, assistance in the preparation of term sheets and proposals for delivery to prospective clients and in the negotiation of contract terms and drafting contracts, use of the Canco website as a portal in communicating with current and prospective purchasers and attending key trade events to promote the USco information services.
The Services Agreement between Canco and USco stipulates that Canco is not acting as agent of USco; and Canco does not have contact with the customers.
There is no statutory definition of carrying on business in Canada for ETA purposes. CRA ruled that USco, following the New Services addition, is not carrying on business in Canada for GST/HST purposes – and also ruled that the supply of the New Services by Canco to USco is zero-rated pursuant to Sched. VI, Pt. V, s. 5 (arranging for, procuring or soliciting orders for supplies made outside Canada).