28 October 2005 Excise Interpretation 62435 - Application of Subsection 4(4) of the Excise Tax Act

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 concerning the application of the tax under Part I of the Excise Tax Act (the "ETA") to your operations.

All legislative references are to the ETA and the regulations therein, unless otherwise specified.

Background

Based upon the information provided, we understand the following:

You have advised that XXXXX is a XXXXX based corporation that recently became licensed as an insurance agent in the province of XXXXX, as did several of its employees. XXXXX is a licensed insurance agent and broker located in the province of XXXXX.

XXXXX is a licensed insurance broker in a majority of the states in the United States of America. You describe XXXXX business model as that of a wholesale insurance broker. You advised that XXXXX does not solicit or sell insurance to companies or individual prospects, or communicate with prospects or insureds.

In most instances, the insured or prospect is not introduced to XXXXX. Because of XXXXX specialized knowledge, experience and contracts, insurance brokers contact XXXXX to assist in placing transactions on their behalf with insurance companies for specialty insurance coverage.

In the province of XXXXX, XXXXX and XXXXX have an exclusive arrangement. Companies or individuals wishing to purchase Executive Liability Insurance (D&O) either contact XXXXX or they are contacted by agents and brokers working for XXXXX. XXXXX provides insurance applications to XXXXX office. XXXXX obtains quotes from insurance markets licensed to do business in Canada on behalf of XXXXX. Market summaries, including final quotes and policy reviews are then provided to XXXXX.

If XXXXX is successful in selling insurance to a prospect, XXXXX directs XXXXX to order the policy (XXXXX will only take direction from the Canadian agent or broker, and no other party). At no time does XXXXX contact any prospect or insured, send any materials or information to prospects or insureds, or send invoices to prospects or insureds. After the policy is issued, XXXXX reviews it for accuracy, and forwards it to XXXXX.

You have advised that in all cases, there is more than one broker or agent involved (i.e., XXXXX and XXXXX). In all cases, the contract of insurance is entered into or renewed through XXXXX. Payment of the premium or any part of the premium thereon is effected through XXXXX. You have advised that in all cases, XXXXX is the broker or agent directly retained or instructed by the insured. XXXXX is never directly retained or instructed by the insured (this is also true of all insurance XXXXX works on within the United States).

Interpretation Requested

You would like to know whether or not subsection 4(4) of the ETA would apply to your business model.

Interpretation Given

In light of the fact that you did not forward any contracts or agreements with your written submission, we will be providing you with an interpretation of the relevant portions of the legislation in order to assist you and your clients in fulfilling your obligations under the law.

As you are aware, subsection 4(4) of the ETA provides 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 effected through more than one broker or agent, the contract shall, for the purposes of Part I of the ETA, 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.

In order to establish which broker is the one directly retained by the insured, the Canada Revenue Agency could review, amongst other things, the applicable insurance contract, the invoice, documentation establishing the broker to whom payment was made, documentation establishing the currency used, records documenting the communications that occurred between the parties or any other relevant facts. The broker retained must be the initial contact and stay involved as the primary contact of the insured until the completion of the transaction.

Based upon the information provided in your submission, it would appear as though XXXXX is not the broker or agent directly retained or instructed by the insured. Provided that things are as you say they are, then pursuant to subsection 4(4) of the ETA, the contract(s) of insurance described in your submission will be considered to be entered into or renewed, as the case may be, through XXXXX, (i.e., the agent/broker located in the province of XXXXX), the agent/broker directly retained or instructed by the insured, and not through your company XXXXX.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 941-2348.

Yours truly,

Douglas Wood, CGA
Rulings Officer
Other Levies Unit
Excise Duties & Taxes Division
Excise and GST/HST Rulings Directorate

2005/09/08 — RITS 63228 — [Application of Section 158 of the Excise Act, 2001 on the Imported Vodka]