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.
Susan Kissner
Industry Sector Specialist
Corporate Reorganizations
Financial Institutions and Real Property
Division, Excise and GST/HST
Rulings Directorate
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
CASE NUMBER:
106684
DATE:
March 27, 2009
SUBJECT:
_GST/HST Interpretation
ITC re Completion Fee
We are writing in response to your memorandum XXXXX, concerning whether XXXXX is entitled to claim an input tax credit ("ITC") for the GST payable on a completion fee paid to XXXXX in respect of financial advisory services of determining whether the takeover offer from another corporation, XXXXX XXXXX was fair and reasonable. We apologize for the delay in responding.
All references are to the Excise Tax Act unless otherwise indicated.
We understand the following from the information you provided XXXXX
1. XXXXX, a registrant resident in Canada, is a holding corporation that is not engaged in any commercial activities.
2. XXXXX is not a financial institution under section 149.
3. Its wholly-owned subsidiaries XXXXX are engaged in XXXXX.
4. XXXXX has claimed ITCs in respect of activities related to its subsidiaries that are allowed under subsection 186(1).
5. XXXXX acquired XXXXX in XXXXX and is the XXXXX% shareholder.
6. Prior to the takeover XXXXX owned XXXXX% of the shares of XXXXX.
7. XXXXX
8. A completion fee was among the fees payable for the services provided by XXXXX, and is payable when a transaction is completed or XXXXX announces or enters into an agreement in respect of a transaction.
9. A copy of the invoice issued by XXXXX to XXXXX indicates GST in the amount of $XXXXX in respect of the completion fee.
10. XXXXX has made an ITC claim for $XXXXX in respect of the fee.
You concluded that 186(2) does not apply to allow an ITC for the GST paid in respect of the completion fee for the financial advisory services because XXXXX was not acquiring the shares of a target corporation, rather the shares of XXXXX were the subject of a proposed takeover. A XXXXX referred you to the court case BJ Services Company Canada et al v. The Queen; however, you noted that XXXXX does not have any commercial activity and does not have any taxable supplies for the ITC to be directly linked, and therefore, the court's decision would not apply to allow an ITC in the circumstances.
We would like to provide you with the following comments:
Subsection 186(2) only applies to a registrant that is a corporation that is resident in Canada that is acquiring or proposing to acquire all or substantially all of the issued and outstanding shares of another corporation engaged in commercial activities. Therefore, subsection 186(2) does not apply since XXXXX is not the acquirer but is the target corporation in the takeover transaction, and ITCs may not be claimed pursuant to subsection 186(2) and section 169.
With respect to XXXXX, it is engaged exclusively in making supplies of financial services that are exempt supplies (e.g. holding of shares in subsidiaries, other investment activities in its subsidiaries, etc) and does not engage in any commercial activities. Subsection 186(1) may apply where it may reasonably be regarded that XXXXX acquired property or services for consumption or use in relation to the shares or indebtedness of corporations related to XXXXX; and, where all the requirements of subsection 186(1) and section 169 are met it will be entitled to ITCs in respect of the acquisition of the particular property or services. Subsection 186(1) does not, however, apply to the particular services in question on the basis that the services cannot reasonably be regarded as having been acquired by XXXXX for consumption or use in relation to shares or indebtedness of corporations related to XXXXX.
Please note that although subsection 186(1) may apply with respect to a parent corporation's investments in corporations to which it is related, subsection 186(1) does not deem the corporation to be engaged in commercial activities where it acquires inputs that relate to the shares and indebtedness of a related corporation. Rather, where subsection 186(1) applies, it deems the particular property or services acquired by the parent to be for use in the course of commercial activities of the parent to the extent the property or services have been acquired for consumption or use in relation to the shares or indebtedness of the related corporation. Therefore, while subsection 186(1) may apply to XXXXX with respect to the acquisition of certain property or services, it does not deem XXXXX to be engaged in commercial activities.
Our position with respect to the decision in BJ Services Company Canada et al v The Queen, is that it applies to a specific fact situation. As such the CRA will apply the Court's decision in that case to target corporations in similar fact situations. To generally summarize the Court's decision, the Court concluded that with respect to a corporation's activities the only grounds for denying ITCs are personal use and the making of exempt supplies. The Court determined that BJ Services Company Canada ("BJ") was only engaged in commercial activities; the particular inputs it acquired were not for personal use; and they were not acquired by BJ for the purpose of making exempt supplies. This being the case it was entitled to claim ITCs with respect to the particular inputs. As you correctly indicated, the fact situation with respect to XXXXX is distinguished on the basis it is not making taxable supplies in the course of a commercial activity and ITCs cannot be linked to the making of any taxable supplies. Our position is that in these circumstances the court's decision above does not apply.
Therefore, based on the information provided, XXXXX does not meet the requirements of either subsection 186(1) or subsection 186(2) with respect to the acquisition of the financial advisory services of determining whether the takeover offer from XXXXX was fair and reasonable. Further, XXXXX only makes supplies of financial services that are exempt and it is not engaged in any commercial activities. Therefore, XXXXX did not acquire the financial advisory services for consumption, use or supply in the course of commercial activities and the requirements of section 169 for claiming an ITC cannot be met by XXXXX with respect to the completion fee paid for the services.
XXXXX
We trust our comments will be of assistance to you. Should you wish to discuss the matter further please do not hesitate to contact me at (613) 952-9213.
UNCLASSIFIED
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