Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
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FROM:
Hélène Bustamante
Rulings Officer
Financial Institutions Unit
320 Queen Street, 15th Floor, Tower A
Ottawa, ON K1A 0L5
DATE:
August 5, 2008
CASE NUMBER:
79925
XXXXX
XXXXX - ABM
Thank you for your facsimile concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to services under Licence Agreements. We apologize for the delay in responding to your enquiry.
All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.
As the transaction described in this letter all take place in XXXXX, reference will be made to the GST only.
You have provided us with the following three Licence Agreements:
Licence Agreement 1 dated XXXXX, between XXXXX (Licensor) and XXXXX (Licensee);
Licence Agreement 2 dated XXXXX between XXXXX (Licensor) and XXXXX (Licensee);
Licence Agreement 3 dated XXXXX between XXXXX (Licensor) and XXXXX (Licensee).
XXXXX.
XXXXX.
XXXXX is a registrant for GST/HST purposes XXXXX.
XXXXX has collected significant revenue from ABM operation. However, no GST/HST was remitted on these revenues. You would like us to review all three licence agreements to determine whether the supply has changed and how GST/HST applies to the supply provided under the various agreements.
XXXXX. Although the parties are different in each agreement we will refer to the Licensor and Licensee throughout this letter for ease of reference.
The issue is to determine the tax status of what is being provided by the Licensor to the Licensee under Licence Agreement 2 and Licence Agreement 3.
FACTS/BACKGROUND
1. XXXXX.
2. XXXXX.
3. XXXXX. XXXXX collected and remitted some GST for fiscal year ending XXXXX but did not collect or remit any GST for fiscal year ending XXXXX.
4. There are two separate licence agreements in place XXXXX (Licence Agreement 2 and 3). These two agreements are the ones at issue here.
5. XXXXX is treating the XXXXX Transaction Fee mentioned in Licence Agreement 2 as an exempt financial service and bases XXXXX his position on XXXXX.
XXXXX.
6. XXXXX.
XXXXX.
7. XXXXX.
8. XXXXX does not remit any GST on the fees charged by them to the Licensee as they consider the fees to be related to the supply of money to the Licensee and as such treat the fees as consideration for an exempt financial service as stated in XXXXX mentioned above.
Licence Agreement 1
9. The preamble to Licence Agreement 1 provides that the Licensor owns and operates XXXXX and that the Licensee wishes to operate 12 ABMs Licensor's establishment.
10. XXXXX Licence Agreement 1 states that the Licensor grants a Licence to the Licensee to operate the ABMs in a specified area identified by the Licensor.
11. XXXXX Licence Agreement 1 provides that the right granted to the Licensee is a licence only and is not a partnership, agency, lease or joint venture.
12. The Licensee is responsible for supplies XXXXX and repairs to the ABMs XXXXX.
13. The Licensor provides services such as providing, heat, light, electricity, rubbish and cleaning in relation to the space where the ABM is located XXXXX, replenishes and provides the cash for the ABMs XXXXX and agrees not to have any other ABMs in its establishment XXXXX.
14. As stated in XXXXX Licence Agreement 1, the Licensee pays a monthly Licence Fee of XXXXX per ABM as well as a Transaction Fee calculated on the volume of transactions (i.e. withdrawals and cash advances processed) per day for each ABM.
Licence Agreement 2
15. According to Licence Agreement 2 the Licensor:
• grants to the Licensee a licence to operate exclusively the Licensee's ABMs in an area of approximately XXXXX per ABM and permits the Licensee's customers, access to ABMs during normal business hours of Licensor XXXXX;
• supplies Canadian currency and loads it in the machine XXXXX;
• provides services in relation to the ABM itself such as first line maintenance
XXXXX;
• provides some services in relation to the space such as light, electrical power, telephone line, cleaning of the ABMs and surrounding area XXXXX;
• will not allow other banks to place their ABMs inside the Licensor's establishment
XXXXX.
16. The only significant difference between Licence Agreement 1 and 2 is the description of the fees paid to the Licensor.
17. As stated in XXXXX Licence Agreement 2, the Licensor receives revenues from XXXXX sources.
• In consideration of the services provided in XXXXX the Licensee will pay the Licensor XXXXX per successful and completed transactions. XXXXX are listed in Licence Agreement 2 under the heading XXXXX. Under these sections the Licensor's duties are to provide Canadian funds in the ABM and to provide first line maintenance to the ABM.
• In consideration of the Licensor providing licensed space the Licensee will pay a Licence fee of XXXXX per month per ABM for XXXXX ABMs. GST was collected and remitted on this fee by the Licensor.
Licence Agreement 3
18. According to Licence Agreement 3 the Licensor:
• grants to the Licensee a licence to operate exclusively the Licensee's ABMs in an area of approximately XXXXX per ABM and permits the Licensee's customers, access to ABMs during normal business hours of Licensor XXXXX;
• supplies Canadian currency and loads it in the machine XXXXX;
• provides services in relation to the ABM itself such as first line maintenance
XXXXX;
• provides some services in relation to the space such as light, electrical power, telephone line, cleaning of the ABMs and surrounding area XXXXX;
• will not allow other banks to place their ABMs inside the Licensor's establishment
XXXXX.
19. The major difference in Licence Agreement 2 and 3 is the introduction of XXXXX. These services are described in XXXXX Licence Agreement 3 as follows:
• day-to-day ABM operational maintenance, including loading cash, clearing paper and bill jams, replacing paper, ribbon and ink cartridges, surface cleaning of ABM and surrounding area; detection of minor faults or damage, assistance and identification of minor diagnostics;
• provision of cash funds in Canadian dollars in denominations required for use in the ABMs;
• management of the supply of cash funds for loading into and dispensation from the ABMs;
• responsibility for cash missing from any ABM and if cash is missing advise the licensee.
20. Based on XXXXX Licence Agreement 3, XXXXX are to be provided either by the Licensor or the Licensee. If XXXXX is chosen it is the Licensor who will provide the XXXXX. If it is XXXXX is chosen it is the Licensee who will provide those same services.
21. Based on XXXXX Licence Agreement 3, XXXXX will be performed under XXXXX.
22. XXXXX Licence Agreement 3 allows the Licensor to switch between XXXXX subject to certain conditions.
23. The calculation of the fees is set out in XXXXX Licence Agreement 3 and varies depending on which XXXXX is used XXXXX. XXXXX states that in consideration for services described in XXXXX and XXXXX (i.e. services linked to the management of cash funds for loading in the ABM, the day-to-day ABM operational maintenance, and placement selection for the location of ABM) the Licensee pays the Licensor XXXXX.
24. In the case of XXXXX the Licensor will have to pay a per transaction fee to the Licensee in accordance with a formula XXXXX.
25. In addition, XXXXX Licence Agreement 3 provides that the Licensor will be paid all the revenues generated from the surcharge fees regardless of which XXXXX is chosen.
26. Another difference between Licence Agreement 2 and 3 is that there is no longer a fee linked specifically to the licensed space.
Comments
Based on our review of all three licence agreements, we are providing the following comments with respect to the tax status of what is being provided by the Licensor to the Licensee under Licence Agreement 2 and Licence Agreement 3.
Single or Multiple Supplies
It is necessary to consider whether the Licensor is making a single supply or multiple supplies. In that regard, policy statement P-077R2, Single and Multiple Supplies, provides assistance.
For any given transaction, an evaluation of whether a person is making a single supply or multiple supplies must consider all relevant factors. Thus a transaction must be evaluated in its totality to determine whether it is, in fact, a single supply, or whether multiple supplies exist. A determination of a single supply or multiple supplies would consider the overall context of the transaction rather than relying solely on any individual aspect of that transaction.
Two or more elements are part of a single supply when the elements are integral components i.e. the elements are inextricably bound to each other. When examining an agreement, the context of the transaction, the supplier's business practices, the intent of the parties and the circumstances surrounding the transaction must be taken into account. The way in which the amounts are set out in the agreement does not in itself determine if there are single or multiple supplies.
Licence Agreement 2
There is a clear intertwining relationship between each element of the supply in Licence Agreement 2. The Licensor would not provide electricity, heat, air conditioning, and would not keep the machine and space clean of debris if it did not allow the ABMs to be placed in its premises. Similarly, the granting of access to the ABM, the right to operate the ABM and the fact that no other banks may have an ABM in the Licensor's establishment, are also elements that form part of the supply and could not be provided separately by the Licensor. All these elements are necessary for the ABM to operate effectively. These cannot be viewed as separate supplies.
In Licence Agreement 2, the Licensor will be paid a fee on a transaction basis. XXXXX Licence Agreement 2 provides that the Licensor receives this fee for the services described in XXXXX.
Although there is a specific consideration paid to the Licensor for the services related to the provision of cash to the ABM it is our view that there is still one single supply being provided in Licence Agreement 2 as there are no options for the recipient to acquire any of the elements separately.
It is our view that in the situation as defined in the Licence Agreement 2, in examining the agreement, the context of the transaction, the supplier's business practices, the intent of the parties, the circumstances surrounding the transaction and the fact that the elements provided are so intertwined, the supply being made by the Licensor to the Licensee is a single supply of a licence in respect of real property, i.e. agreeing to the installation and operation of ABMs by the Licensee on the Licensor's premises.
Licence Agreement 3
Licence Agreement 3 is very similar to Licence Agreement 2 as it also grants the Licensee the right to operate ABMs in the Licensor's establishment.
The major difference between Licence Agreement 2 and 3 is that the Licensor may also provide XXXXX for ABMs. Another difference is the way the consideration is calculated (i.e. there is no longer a fee that is described as being for the supply of the licensed space).
Based on Licence Agreement 3 the Licensor is the only person that can choose not to provide the cash for the ABMs. In that case the Licensor would still provide the licence in respect of real property, i.e. agreeing to the installation and operation of ABMs by the Licensee on the Licensor's premises.
Although the consideration for the supply will be different based on which XXXXX is chosen and the consideration is calculated differently then in Licence Agreement 2, we are of the view that what is being provided under Licence Agreement 3 remains a single supply of a licence in respect of real property, i.e. agreeing to the installation and operation of ABMs by the Licensee on the Licensor's premises.
Tax Status of the Supply
It is our view that what is being provided by the Licensor to the Licensee under Licence Agreement 2 and Licence Agreement 3 is a licence in respect of real property, i.e. agreeing to the installation and operation of ABMs by the Licensee on the Licensor's premises. Consequently, in both Licence Agreement 2 and Licence Agreement 3 the supply made by the Licensor to the Licensee is a taxable supply XXXXX.
Whether the supply is made XXXXX the supply remains taxable XXXXXXXXX.
If you have any questions or would like to discuss this matter further, do not hesitate to call me at (613) 952-9262.
Hélène Bustamante
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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