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, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 123253
January 19, 2011
Dear [Client]:
Subject:
GST/HST RULING
Services provided by [...] [Company A] to [...] [Company B]
Thank you for your letter of April 7, 2010, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to various services provided by [...] ([Company A]) to [...] ([Company B]) [...]. We apologize for the delay in responding.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, Newfoundland and Labrador, 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) unless otherwise specified.
Statement of Facts
Based on your letter and redacted reproduced portions of the [...] Agreement (Agreement) included in Appendix A and B to your letter, we understand the facts to be as follows:
1. [Company A] [...] operates [...]. [Company A] is registered for the GST/HST.
2. On [mm/dd/yyyy], [...] entered into a [...] Agreement with [...] and on [mm/dd/yyyy] established a [...] (Program).
3. [Company A's] involvement in the Program is as follows:
• Prior to the commencement of the Program [Company A] and [Company B] jointly determined the risks and underwriting policies, procedures and guidelines for the Program.
• [Company A] develops the in-store promotion plan/calendar and then consults with [Company B]. The execution costs for the in-store promotion (e.g., temporary, promo-specific signage) [are] absorbed by [Company A].
• Under the terms of the Program, [Company A] is required to follow all applicable operating procedures related to the Program and to use its reasonable efforts to promote the Program among its customers. This includes developing in-store promotions to market the card such as prominently displaying the Credit Card applications at each of its participating [...] stores, processing and forwarding the applications to [Company B] seeking authorizations for accounts, handling credit transactions with Account holders, transmitting Charge Transaction Data, and training Associates to assist the Applicants with the applications.
• In accordance with the Agreement [Company A] and [Company B] were required to establish [...].
• [...].
• [Company A] exclusively owns the customer list and [Company B] is precluded from using the customer list for anything other than account servicing without [Company A's] prior written consent. [...].
• More than [...] percent of the credit cards are obtained through the in-store application process.
• As this is a [...] credit card it can only be used at [Company A's] stores. All [Company A] stores accept payments on account for the [...] credit card as well as accept other types of credit cards for purchases made at the stores.
4. In addition, the following activities and responsibilities are performed by [Company A] and [Company B] based on the Agreement:
• [Company A] makes the credit card applications readily available to the Applicants in all of its participating stores.
• An Applicant completes the application form and gives it to the [Company A] associate (Associate) who is trained to assist the Applicant with completing the form.
• Associates who are responsible for signing Applicants up for new [....] credit accounts are required to watch a [...] training video that is available on the store computers. Associates are also required to take a [...] course on the features and benefits of the [...] products. Associates do not receive any type of remuneration for a successful sign up or the completion of these courses.
• As part of the in-store application process the Associate is required to review the application form for completeness and verifies the accuracy of the data provided by the Applicant, requests the Applicant's driver's license or other form of picture identification to confirm the Applicant's identity, and writes this information on the bottom of the application. The Associate then enters all the data provided by the Applicant into [Company A's] computer which is directly linked to [Company B's] network.
• Once the information is transmitted by [Company A] to [Company B], [Company B] determines, at its sole discretion, the creditworthiness of the Applicant and processes the application.
• Once the application is processed, the Applicant receives a decision from [Company B].
• If [Company B] grants credit to the Applicant, the information is generally relayed within minutes to the Associate who informs the Applicant; writes the Applicant's account number and credit limit on the bottom of the application or certificate; signs the Applicant's [...] (Pass) and has the Applicant sign the Pass; staples the [...] Agreement, the Terms and Conditions information and the Pass together and gives the information to the Applicant; explains to the Applicant the procedures to follow regarding the use of the Pass until the credit card is received by mail; and files the pertinent papers in a designated secured location.
• If [Company B] decides that the application should be placed temporarily in a pending status, the Associate informs the Applicant that a determination of whether credit will be granted may take [...] days and that a decision will be mailed to the Applicant. If more information is required to process the account, the Applicant is to provide the information directly to [Company B].
• If [Company B] declines the application for credit, the Associate writes N/A on the application form, informs the Applicant that an account cannot be opened for them at this time, and that the Applicant will receive a written response from [Company B] in [...] business days. A letter prepared by [Company B] is automatically printed for the Applicant indicating an account cannot be opened at this time. If the Applicant has any questions regarding why the application was declined, the Applicant is required to communicate directly with [Company B].
• The Associate then files the declined application at the [...] and, at the end of the day, the Associate bundles the approved and the declined applications and certificates separately and sends them to [...].
5. Section [...] of the Agreement provides detail regarding the Promotion of the Program and Program Costs and states in part as follows:
(a) Retailer [Company A] will develop and review with [...] [Company B] all marketing plans [...].
(b) Marketing expenses will include, but are not limited to:
(i) marketing collateral - applications, signage, etc.
(ii) direct mail-activation and acquisition programs for new/existing customers
(iii) telemarketing
(iv) in store programs-hostess programs for new stores, associate incentives, customer events etc.
(v) test programs-support for new products or new Retailer initiatives
(c) An annual marketing budget will be established by Retailer [Company A] and reviewed with [...] [Company B] at the beginning of each year
(d) [...] Retailer [Company A] shall prominently display at all Retailer Locations all Credit Applications supporting the Program and shall use its reasonable efforts to promote the Program among its customers
(e) [...].
6. Appendix A included in your letter states in part that [...].
Ruling Requested
You request confirmation that the Fee paid to [Company A] by [Company B] for the services performed under the Program and in accordance with the Agreement are exempt financial services.
Ruling Given
Based on the facts set out above, we rule that the services described in points 4 and 5 in the Statement of Facts performed by [Company A] under the Program are part of a single taxable supply of services to [Company B] and not an exempt supply of financial services and as such is 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 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
Where an agreement provides for the provision of a number of services or property and services, it must first be determined whether a single supply or multiple supplies are being provided under the agreement. This distinction is important in cases where a combination of services and or property is supplied by a person under an agreement, some of which would be taxable and some of which would be exempt if supplied separately.
Based on the Agreement, [Company A] provides a number of services to [Company B]. Whether [Company A] is making a single supply or multiple supplies is a question of fact. GST/HST Policy Statement P-077R2, Single and Multiple Supplies, provides additional information on determining whether a single supply or multiple supplies are being provided, 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 facts above, it is clear that each element of the services is intricately linked to each other and that [Company B] does not have the option to acquire some services separately. As such, [Company A] provides a single supply to [Company B].
All supplies of financial services are exempt under Part VII of Schedule V unless they are specifically zero-rated under Part XI of Schedule VI (which generally requires that the supply be made by a financial institution to a non-resident and that certain other conditions are met). 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. An activity performed by a person that is the "arranging for" a financial service is included in paragraph (l) of the definition of financial service in subsection 123(1).
The term "arranging for" is generally intended to include intermediation activities that are normally performed by financial intermediaries described in subparagraph 149(1)(a)(iii), such as agents, brokers and dealers in financial instruments or money. In determining if an intermediary's service is included in paragraph (l), all the facts surrounding the transaction, including the following factors, must be considered:
• the degree of direct involvement and effort of the person in the provision of a financial service referred to in any of paragraphs (a) to (i);
• the time expended by the intermediary in the provision of a financial service referred to in any of paragraphs (a) to (i);
• the degree of reliance of either or both the supplier and the recipient on the intermediary in the course of providing a financial service referred to in any of paragraphs (a) to (i);
• the intention of the intermediary to effect a supply of a financial service referred to in any of paragraphs (a) to (i); and
• the normal activities of an intermediary in a given industry (including whether the intermediary is engaged in business of providing financial services).
Where an intermediary provides a number of services including services described by any of paragraphs (n) to (t) as part of an agreement to arrange for a supply of a financial service, the single supply of the bundled services may be a supply of a financial service of arranging for, depending on the facts surrounding the transaction, the above listed factors, and the predominant element of the supply.
In general, services in the nature of management, administration, marketing or promotional activities are intended to be taxable as they are not themselves financial services. Based on the information provided, while some of [Company A's] Program related activities, such as assisting with the completion of the applications and the verification of the identity of the Applicants, assist [Company B] in providing a financial service of granting credit to an Applicant, [Company A's] activities when considered as a whole are predominantly promoting and marketing the Program.
Even if the supply includes services included in paragraph (l) of the definition of financial service in subsection 123(1), it is excluded from the definition of financial service by paragraphs (r.3), (r.4) and (t) of the definition.
New paragraph (r.3) was added to the definition of financial service to clarify that credit management services are excluded from that definition. Paragraph (r.3) excludes from the definition of financial service, a service (other than a prescribed service) of managing credit in respect of credit cards, charge cards, credit accounts, charge accounts, loan accounts or accounts in respect of any advance, where the service is supplied by one person to another person that is granting, or potentially granting, credit in respect of those cards or accounts 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 relating to a grant, or an application for a grant, of credit;
• creating or maintaining records for the person relating 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 of dealing with payments made, or to be made by the other person.
New paragraph (r.4) was added to the definition of financial service to clarify that certain services that are preparatory to or provided in conjunction with a financial service are excluded from that definition. 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 such 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 a similar service;
Currently, no services are prescribed for the purposes of paragraphs (r.3) and (r.4).
It is important to note that paragraphs (r.3) and (r.4) are deemed to have come into force on December 17, 1990, except where it is in respect of a service rendered under an agreement, evidenced in writing, for a supply if all of the consideration for the supply became due or was paid on or before December 14, 2009, and the supplier did not, on or before that day, charge, collect or remit any amount as or on account of GST/HST in respect of the supply or any other supply that is made under the agreement that includes a credit management service or a preparatory service.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9262. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Paul Lafond
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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