30 July 2004 Excise Ruling 50277 - XXXXX

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.

Dear XXXXX:

Thank you for your letter XXXXX (with attachments), requesting a confirmation of the application of the Excise Tax to the following transaction(s) XXXXX.

From your FAX XXXXX to XXXXX the Canada Revenue Agency (CRA), and your FAX XXXXX submitting additional information on the insurance coverage and from our researches on several Web sites, our understanding of the facts, the transaction(s), and the purpose of the transaction(s) is as follows:

Statement of Facts

1. Your company, XXXXX Canada Limited, is a subsidiary of XXXXX Corporation XXXXX. XXXXX Canada is the result of the acquisition of XXXXX Canada XXXXX.

2. XXXXX Canada pays an internal allocation charge to XXXXX US for its portion of the worldwide insurance policy taken out to cover its domestic and international risk.

3. XXXXX Canada is not named or listed within the policy itself as an insured party. In other words, XXXXX Canada is not party to any contract of insurance, either directly or through an agent/broker.

4. You state that since XXXXX US is not an insurer, nor is XXXXX US a broker assisting XXXXX Canada to be a named insured/beneficiary in the actual worldwide insurance policy, therefore, the payment from XXXXX Canada is not a payment for the issuance or brokerage of an insurance policy to XXXXX Canada. Instead, the payment is an internal corporate cost allocation of an expense borne by XXXXX US in the course of its international risk coverage.

5. The broker used by XXXXX to acquire their worldwide insurance coverage is XXXXX USA.

6. XXXXX issued by XXXXX to XXXXX US describes under "Canadian General Liability" the coverage and limits. It provides the company name "XXXXX Assurance Company", the policy number XXXXX and the policy period XXXXX. The remaining of the XXXXX describes other coverage and policy information.

7. XXXXX used the Canadian member of their group, XXXXX Canada Limited XXXXX, to arrange the issuance of the policy covering the Canadian General Liability with XXXXX Assurance Company.

8. XXXXX Assurance Company is authorized to transact the business of insurance in Canada according to the list of insurance companies registered to do business in Canada under the Insurance Companies Act published by the Office of the Superintendent of Financial Institutions Canada.

Ruling Requested

What is the tax status of the amount paid by XXXXX Canada to XXXXX US under Part I of the Excise Tax Act (ETA)?

Ruling Given

Based on the facts set out above, we rule that the amount paid by XXXXX Canada to XXXXX US as repayment of the cost of insurance coverage is subject to the 10% Excise Tax on Insurance Premiums.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under objection or appeal; that there are no relevant changes in the future to the Excise Tax Act (ETA), or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

According to subsection 4(1) of the ETA, "Every person resident in Canada by whom or on whose behalf a contract of insurance ... is entered into or renewed ... (b) with any insurer that at the time the contract is entered into or renewed is authorized under the laws of Canada or of any province to transact the business of insurance, if the contract is entered into or renewed through a broker or agent outside Canada, shall ... pay to the Minister, in addition to any other tax payable under any other law, a tax of ten per cent on the net premiums paid or payable ...".

The information extracted from the documentation submitted clearly indicates that the insurance contract was entered into by XXXXX US on behalf of XXXXX Canada. The quality of XXXXX US as insurer or broker is irrelevant, XXXXX US is acting as an intermediary between XXXXX Canada and the broker and does not need to be a broker itself.

The "Canadian General Liability" coverage under policy number XXXXX with XXXXX Assurance Company was entered into with an insurer authorized under the laws of Canada to transact the business of insurance through a broker outside Canada. Subsection 4(4) of the ETA states that:

"Where a contract of insurance is entered into or renewed through more than one broker or agent, or where payment of the premium or any part of the premium thereon is affected through more than one broker or agent, the contract shall, for the purposes of this Part, be deemed to have been entered into or renewed, as the case may be, through the broker or agent directly retained or instructed by the insured and not through any other broker or agent."

The broker directly retained is XXXXX, a broker outside Canada, and the 10% Excise Tax applies to the insurance premium paid or payable by or on behalf of XXXXX Canada in accordance with paragraph 4(1)(b) of the ETA.

The remaining insurance coverage described in the XXXXX provides names of insurance companies "not incorporated under the laws of Canada or of any province or not formed in Canada ... that at the time the contract is entered into or renewed is not authorized under the laws of Canada of any province to transact the business of insurance" and the 10% Excise Tax applies to the insurance premium paid or payable by or on behalf of XXXXX Canada in accordance with paragraph 4(1)(a) of the ETA.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-6720.

Yours truly,

Denis Linteau
Other Levies Unit Unit
Excise Duties & Taxes Division Division
Excise and GST/HST Rulings Directorate

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