Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 14th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 87064
Business number: [...]
July 22, 2010
Dear [Client]:
Subject:
GST/HST RULING
Credit card processing services
Thank you for your letter of [mm/dd/yyyy] concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to services provided by [...] [Service Provider] to your client, [...] [FinanceCo]. We apologize for the delay in responding to your enquiry.
HST applies at the rate of 15% in Nova Scotia, 13% in New Brunswick, Newfoundland and Labrador, and Ontario, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
Statement of Facts
The following is our understanding of the facts:
1. [The Service Provider] [...], [...] [FinanceCo], [...] (the Bank) and [...], entered into a [...] Agreement on [mm/dd/yyyy] (the Agreement).
2. The Bank and the Service Provider are registered for GST/HST purposes.
3. Based on [...] of the Agreement:
• the Bank is engaged in the business of advancing credit to credit cardholders, financing and managing the related accounts and receivables;
• the Service Provider is engaged in business process outsourcing, including providing customer relationship management and contact centre services and back office services for the banking and/or credit card industry; and [...].
4. The following terms are defined in section [...] of the Agreement as follows: [...].
5. Based on section [...] of the Agreement the Bank appoints the Service Provider to provide the Services to the Bank.
6. Based on section [X] of the Agreement, the Services included those outlined in Schedule [XX], any other services that would normally be delivered and form part of the services set forth, any additional services or changes to the Services as set forth in section [...] and any other service described in the Agreement.
7. The services provided by the Service Provider are outlined in Schedule [XX] to the Agreement and include the following:
a) assist in the development of telephone scripts and design of credit card applications, originate and handle credit card applications, and screen and process applications;
b) process new applications, review applications, process credit limit increase or decrease with respect to existing clients;
c) payment processing services;
d) fund transfer services, settlement and reconciliation services;
e) chargeback processing, accounting settlement and reconciliation and related operational services;
f) risk minimization, fraud detection, investigation and recovery services;
g) contact centre services to respond to customer inquiries;
h) [...] services to customers; and
i) information technology related and support services which are integral to the ongoing maintenance and operation services.
8. Further details on the services described in point 6 above are set out in sections [...] of Schedule [XX] to the Agreement.
9. Section [...] of the Agreement provides that the Services provided by the Service Provider are not exclusive. The Bank may choose to contract with another person to provide any part of the services under the Agreement subject to certain conditions.
10. Additional responsibilities of the Service Provider are described in Section [...] of the Agreement which include:
• maintain equipment and software as required in order to continue to provide the Services;
• develop and comply with customer complaint resolution process;
• develop, implement and monitor customer satisfaction surveys;
• develop policies and procedures related to performance and delivery of the Services;
• retain and store the Bank's data; [...].
11. Section [...] of the Agreement provides for the compensation payable to the Service Provider. Fees are payable and calculated in accordance with Schedule [...].
12. Schedule [...] outlines the fees that the Bank will pay to the Service Provider. Each service has a specific price identified. [...].
13. [...] [comments about the Agreement]
14. Section [...] of the Agreement provides that the relationship of the parties is that of independent contractors, that the Service Provider is not an agent or employee of the Bank and that the parties are not partners or joint venturers with each other.
15. [...] [comments given by Service Provider]
16. [...] [comments about the Agreement]
Ruling Requested
You would like to know how GST applies to the services provided by the Service Provider to the Bank under the Agreement.
Ruling Given
Based on the facts set out above, we rule that the services, as set out in section [X], provided by the Service Provider under the Agreement including the services outlined in Schedule [XX] is a single taxable supply of services and as such subject to GST/HST.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
As in any transaction, it is important to properly characterize what is being supplied in order to determine how GST/HST applies to that transaction. Based on the Agreement, the Service Provider provides a number of services to the Bank. It is necessary to determine whether the Service Provider is making a single supply or multiple supplies.
The determination of whether a transaction consists of a single or multiple supplies is a determination of fact. GST/HST Policy Statement P-077R2, Single and Multiple Supplies, provides guidelines to help make that determination, including the following principles:
1. Every supply should be regarded as distinct and independent.
2. A supply that is a single supply from an economic point of view should not be artificially split.
3. There is a single supply where one or more elements constitute the supply and any remaining elements serve only to enhance the supply.
When reviewing the Agreement it is clear that each element is intricately linked to each other and that under the Agreement, although the Bank may contract with any other person to provide part of the Services the Bank did not initially have the option to acquire some of the elements separately.
The Service Provider provides a single supply to the Bank.
A service will be a financial service where it is included in any of paragraphs (a) to (m) of the definition of financial service in subsection 123(1) and is not otherwise excluded by any of paragraphs (n) to (t) of that same definition.
Although the services provided by the Service Provider to the Bank under the Agreement may include an activity that could be viewed as "arranging for a financial service", we are of the view that the elements taken as a whole are predominantly administrative in nature including the customer relationship management services, contact centre services and back office services. As a result, the supply is not a financial service as it is not included in paragraphs (a) to (m) of the definition of "financial service" in subsection 123(1).
Even if the supply was to be included in paragraphs (a) to (m) of the definition of "financial service" in subsection 123(1) it would be excluded by paragraphs (r.3), (r.4) and (t) of that same definition.
New paragraphs (r.3) and (r.4) further clarify that the service as set out in section [X], provided by the Service Provider under the Agreement including the services outlined in Schedule [XX] are not financial services and is a single taxable supply.
Specifically, paragraph (r.3) clarifies that a service (other than a prescribed service) of managing credit in respect of a credit or charge card or similar payment card, or in respect of a credit, charge or loan account or an account in respect of any advance, where the service is supplied to a person that is granting, or potentially granting, credit is excluded from the definition of "financial service".
A service of managing credit includes:
• checking, evaluating or authorizing credit;
• making decisions on behalf of the person in relation to a grant, or an application for a grant of credit;
• creating or maintaining records for the person in relation to a grant, or an application for a grant, of credit or in relation to the cards or accounts; or
• monitoring another person's payment record or dealing with payments made, or to be made, by the other person.
New paragraph (r.4) clarifies that certain services that are preparatory to or provided in conjunction with a financial service are excluded from that definition.
Specifically, paragraph (r.4) excludes from the definition of financial service, a service (other than a prescribed service) that is preparatory to the provision or the potential provision of a service referred to in any of paragraphs (a) to (i) and (l) of the definition of "financial service", or that is provided in conjunction with a service referred to in any of those paragraphs, that is:
• a service of collecting, collating or providing information, or
• a market research, product design, document preparation, document processing, customer assistance, promotional or advertising service or similar service.
Currently, no services are prescribed for the purposes of paragraph (r.3) or (r.4).
Paragraphs (r.3) and (r.4) are deemed to have come into force on December 17, 1990 except when certain conditions are met. Specifically, these paragraphs do not apply where, under a written agreement:
• all of the consideration for the supply became due or was paid on or before December 14, 2009;
• the supplier did not, on or before December 14, 2009, charge, collect or remit any amount as or on account of tax under Part IX in respect of the supply; and
• the supplier did not, on or before December 14, 2009, charge, collect or remit any amount as or on account of tax under Part IX in respect of any other supply that is made under the agreement and that includes the provision of a service referred to in any of paragraphs (q), (q.1) and (r.3) to (r.5) of the definition of financial service in subsection 123(1).
The above exception does not apply for purposes of Division IV of the Act. For purposes of Division IV, paragraphs (r.3) and (r.4) are effective as of December 17, 1990 in all cases.
Given the facts set out above, the GST/HST is payable on the services, as set out in section [X] provided by the Service Provider under the Agreement including the services outlined in Schedule [XX] effective [mm/dd/yyyy].
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-9248 or Dawn Weisberg at 613-952-9210.
Yours truly,
Ivan Bastasic
Director
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
Email this Content