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.
|
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5XXXXX
XXXXX
XXXXX
XXXXX
|
Case Number: 45331XXXXXJune 23, 2006
|
|
Subject:
|
GST/HST INTERPRETATION
Supply of Marketing/Promotion Campaign Services
|
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 marketing/promotion campaign services by a Canadian supplier, Canco, to a non-resident recipient. We apologize for the delay in replying.
All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.
The Minister of Finance announced in the Federal Budget of May 2, 2006, a proposal to reduce the rate of the GST and the federal portion of the HST by 1%, effective July 1, 2006. The general rule is that the rate of GST will be reduced from 7% to 6% and the rate of the HST from 15% to 14% on supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to Reduction in the Rate of the GST/HST - Questions and Answers (http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html) on the CRA Web site.
The following information was provided in your letter.
• Canco is a marketing/promotion services company XXXXX.
• Canco is registered for GST/HST purposes.
• Canco designs and structures marketing and promotional programs for its clients, who may be situated in or outside Canada.
• Canco's services consist of the following services.
• Canco meets with the client to determine the client's needs and to assess the client's system and financial capabilities.
• Based on it's finding from the meeting and further input from the client, Canco will design a promotion/marketing program for the client.
• Canco creates and designs the materials used in the marketing program. More specifically, Canco performs the copywriting, creative direction and quality control for the materials. The specific design work may be performed by a third party subcontractor in Canada who contracts directly with Canco.
• In most cases, Canco ships the materials to a fulfillment house for distribution. When dealing with a non-resident client, the fulfillment house is situated outside Canada.
• Canco acts as project manager for the program advising and consulting with the client and third party service providers as to the program's development and operation. The third party service providers contract directly with the client. For example, Canco may discuss the client's data integration system with a representative of the client to determine the client's system capabilities. However, any changes to the system based on Canco's analysis are performed by a third party who contracts directly with the client.
• XXXXX.
• Canco is proposing to enter into an agreement to create and implement a marketing/promotion program with USCo.
• USCo is a U.S. corporation that has no physical presence, employees or business activities in Canada. USCo is not registered for GST/HST purposes.
• USCo carries on business XXXXX to customers in the U.S. XXXXX.
• USCo is seeking means to increase its sales XXXXX.
• To achieve these goals, USCo has entered into an agreement with Canco to design and implement two promotion/marketing campaigns.
• The campaigns are designed to give USCo's sales force a structured selling program. More specifically, Canco will provide USCo's sales force with a planned and controlled course of action and materials XXXXX. In particular, USCo will provide the sales force with sales and promotional materials XXXXX.
• The first campaign, Campaign #1, is focused on XXXXX being called on for the first time by broker representatives and XXXXX that are first time purchasers of USCo's products. The second campaign, Campaign #2, is focused XXXXX.
• XXXXX.
• Canco will be the supplier of some of the incentives. XXXXX.
• XXXXX.
• Canco will design and create the materials necessary to carry out the program. XXXXX:
• XXXXX;
• XXXXX;
• XXXXX;
• XXXXX.
• The materials will be produced in Canada and the U.S. All of the materials will be delivered to a fulfillment house situated in the U.S. from which they will be distributed to USCo's sales force. In limited cases, the materials may be direct shipped XXXXX.
• Canco will manage the program from Canada. In particular, Canco will perform the following tasks:
• XXXXX.
• XXXXX.
• XXXXX.
• XXXXX.
• XXXXX.
• XXXXX.
• XXXXX.
Interpretation Requested
You would like confirmation of whether the property and services supplied by Canco to USCo qualify for zero-rating under Part V of Schedule VI to the ETA and the relevant provisions.
Interpretation Given
A taxable supply that is made in Canada is subject to GST at the rate of 7%, or HST at a rate of 15% where the supply is deemed to be made in a participating province unless the supply is zero-rated (taxed at 0%). The three participating provinces are Nova Scotia, New Brunswick, and Newfoundland and Labrador.
Paragraph 142(1)(g) of the ETA deems a supply of a service to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. Conversely, paragraph 142(2)(g) of the ETA deems a supply of a service to be made outside Canada if the service is, or is to be, performed wholly outside Canada.
Based on the information provided, it is not possible to conclusively determine whether Canco is making a single supply or multiple supplies. As set out in GST/HST policy statement P-077R2 Single and multiple supplies, it is the Canada Revenue Agency's (CRA's) position that, for GST/HST purposes, the determination of whether a transaction consisting of several elements is to be regarded as a single supply or multiple supplies is based on a determination of fact. The CRA will use the following principles to determine whether a transaction consisting of several elements is to be regarded as a single supply or multiple supplies.
• Every supply should be regarded as distinct and independent.
• A supply that is a single supply from an economic point of view should not be artificially split.
• There is a single supply where one or more elements constitute the supply and any remaining elements serve only to enhance the supply.
A copy of Policy Statement P-077R2 is enclosed for your additional information.
If it were determined that a single supply is being made by Canco to USCo, based on the information provided, it would appear that the supply would be considered to be a single supply of advertising that would be zero-rated under section 8 of Part V of Schedule VI to the ETA.
A supply of an advertising service that is made in Canada, to a non-resident person who is not registered for purposes of the GST/HST, is a zero-rated supply pursuant to section 8 of Part V of Schedule VI to the ETA.
XXXXX.
If it were determined that separate supplies are being made by Canco to USCo, it would not be possible to conclusively determine each of those separate supplies based on the information provided. However, if it were determined that separate supplies are being made by Canco to USCo, based on the information provided, it would appear that each of the possible separate supplies would either be deemed to be made outside Canada or qualify for zero-rating under Part V of Schedule VI to the ETA. This could include, for instance, the supply of exported materials to be used in the promotional campaign that could be deemed supplied outside Canada under subsection 142(2) of the ETA or subsection 179(3) of the ETA. Also, a supply of arranging XXXXX outside Canada for non-residents that would be supplied outside Canada could be zero-rated under section 5 of Part V of Schedule VI to the ETA. Based on the information provided, it would appear that the remaining supplies would be zero-rated under section 5 or 7 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 enclosed 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) 952-6743.
Yours truly,
Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
2006/06/16 — RITS 47787 — Tax Residency
Email this Content