15 December 2005 GST/HST Interpretation 38944 - Interpretation of Subsection 132(3) 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 Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of professional services to a non-resident branch of a Canadian corporation ("Can Co"). We regret the delay in providing you with a response

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

The following scenario was provided in your letter.

•   Can Co is a corporation incorporated in Canada and is a resident of Canada.

•   Can Co operates branches in various locations outside of Canada.

•   One of the branches, located outside Canada, retained the services of a Canadian firm to provide a supply of certain professional services.

•   The supply of services provided by the Canadian professional firm were for the exclusive use of the branch.

Interpretation Requested

Whether Can Co is deemed to be a non-resident in respect of the activities it carries on through its branch located outside Canada that is a permanent establishment of Can Co pursuant to subsection 132(3) of the ETA and whether as a result, a supply of professional services provided to that branch for its exclusive use will be zero-rated pursuant to section 23 of Part V of Schedule VI to the ETA on the basis that the branch is not resident in Canada. It is assumed that none of the exclusions in section 23 of Part V of Schedule VI to the ETA apply.

Interpretation Given

Subsection 132(3) of the ETA states that for purposes of Part IX of the ETA, where a person who is resident in Canada has a permanent establishment in a country other than Canada, the person shall be deemed to be a non-resident in respect of, but only in respect of, activities of the person carried on through that establishment.

"Permanent establishment", in respect of a particular person as defined in paragraph (a) of the definition in subsection 123(1) of the ETA, means a fixed place of business of the particular person, including a place of management, a branch, an office, a factory or a workshop through which the particular person makes supplies.

Whether a particular person has a permanent establishment in a particular situation is a question of fact that may be determined by applying the principles set out in enclosed GST/HST Policy Statement P-208R, Meaning of "Permanent Establishment" in subsection 123(1) of the Excise Tax Act. In particular, it sets out interpretative guidelines with respect to the meaning of the expressions, "fixed place of business" and "through which the particular person makes supplies".

Subject to certain exceptions, section 23 of Part V of Schedule VI to the ETA zero-rates a supply of an advisory, professional or consulting service made to a non-resident person. Based on the information provided regarding the scenario, Can Co would be deemed under subsection 132(3) of the ETA to be a non-resident person in respect of, but only in respect of, activities of Can Co carried on through its branch located outside Canada. As a result, the supply of professional services made to the branch located outside Canada for its exclusive use will be considered made to a non-resident person and therefore qualify for zero-rating under section 23 of Part V of Schedule VI to the ETA.

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.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Goods and Services Tax Rulings.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-6743.

Yours truly,

Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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