11 December 2007 GST/HST Interpretation 88737 - Re: XXXXX Whether Certain Amounts Are Promotional Allowances For Purposes of Section 232.1 of the ETA

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.

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

We have reviewed XXXXX concerning the application of the Goods and Services Tax (GST) to supplier rebate allowances paid to XXXXX ("the corporation") as well as further information received from XXXXX of the corporation.

Facts

We understand the following to be the facts:

1. XXXXX buys and sells computer hardware and software.

2. The corporation receives monetary amounts from its various suppliers directly, such as XXXXX, or through partner/rebate programs such as XXXXX.

3. There are no written agreements or contracts. The corporation has provided XXXXX that the amounts are established to reimburse the cost of promotional events put on by the corporation. Typically, it will rent the facility (golf course, hockey stadium, for example), hire a caterer for dinner, and pay all the expenses to organize the event. The various suppliers agree to cover part of the cost of the event.

4. The corporation invoices its suppliers for "the privilege of spending time with clients for the day as well as having the signage throughout the event and having their name associated with this customer event" XXXXX. The customers of the corporation are end-users (e.g. businesses) or resellers. The corporation does not charge GST/HST on this invoice.

5. Copies of the corporation's invoices for different amounts issued to the various suppliers or rebate programs state the invoices are to "sponsor" an event that was hosted by the corporation.

Request

At issue is whether the amounts paid by these suppliers to the corporation as discussed above qualify as promotional allowances for GST/HST purposes as outlined in section 232.1.

Reply

Based on the facts set out above, it is our view that the amounts in the invoices reviewed are not in respect of promotional allowances as expressed in section 232.1. The amounts are consideration for taxable supplies in respect of the various events made by the corporation to its suppliers.

Explanation

In order to qualify as a promotional allowance for purposes of section 232.1, a particular registrant (in this memo referred to as a "reseller") must acquire particular tangible personal property (in this memo referred to as "specified property") exclusively for supply by way of sale for a price in money in the course of the reseller's commercial activities and another registrant, who has made taxable supplies of the property by way of sale to the reseller or to another person, pays or provides a credit or discount to the reseller of an amount in return for the promotion by the reseller of the specified property. In the context of the case at hand, the corporation must have acquired specified property exclusively for the purpose of selling the property for consideration in the corporation's commercial activity and the rebates must be from another person for the promotion by the corporation of the specified property.

For an amount to qualify as a promotional allowance, each requirement of section 232.1 must be met. These requirements and our policy position on the interpretation of "promotion" are described in GST/HST Policy Statement P-243, Promotional Allowances (P-243). As stated in P-243, "promotion" means efforts, activities or actions that directly or indirectly inform, persuade and influence the acceptance, distribution and sale/purchase of a product.

Promotional allowances are given as inducements to elicit such efforts, activities or actions, or as reimbursements of expenses incurred by resellers for the promotion of goods. …

The tools of promotion include advertising; personal selling; reseller support; publicity; sales promotion; sponsorship and exhibitions.

With respect to the various events of the corporation, P-243 provides an example of an acceptable amount that would be a promotional allowance: an amount paid by a supplier to a reseller in order to sponsor the reseller's participation in a trade show and to feature the supplier's product at the trade show.

The requirements of section 232.1 clearly state that the amount must be paid by the supplier in return for the promotion of the supplier's products that are acquired for sale and promoted by the person receiving the amount. In the above example, an amount paid by a supplier to sponsor a reseller at a conference or trade show would include featuring the supplier's product at the conference or trade show.

In the XXXXX, the amounts paid by a supplier are not in return for the promotion of the supplier's products by the corporation. It is the supplier (not the corporation) who is promoting products at the events by providing staff that may or may not make presentations on products. The corporation organizes the event, pays for the rental of the facilities and for the dinner for the invited customers and suppliers of the corporation. The amount is invoiced by the corporation, and paid by the suppliers, for "the privilege of spending time with [end-users and resellers] for the day as well as having signage throughout the event and having their name associated with this customer event". The suppliers are paying for a supplier's representative to attend an event where the supplier promotes its own products. This supply is not the same as the promotion of the supplier's products by the corporation. Therefore, these amounts invoiced by the corporation and paid by the suppliers do not meet the necessary requirements to qualify as promotional allowances for purposes of section 232.1.

If you require clarification with respect to any of the issues discussed in this memorandum, please call me at 613-952-8811 or Ken Syer, Manager, Specialty Tax Unit at 613-952-9219.

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