4 January 2007 GST/HST Interpretation 83671 - Eligibility to claim Input Tax Credits (ITCs) in respect of hedging activities

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:

This is in reply to your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of medical products made by your client, XXXXX.

XXXXX.

All legislative references are to the Excise Tax Act (the "ETA") and the regulations therein, unless otherwise specified. Facts pertaining to the medical products in question are based on the information you provided, including information from the XXXXX. Additional facts regarding detachable coils and embolic particles were taken from various web sites and medical articles available on the Internet.

Statement of Facts

We understand that:

1. XXXXX.

2. XXXXX makes supplies of various medical products to Canadian hospitals.

3. You identified the following products as the subject of the ruling request:

(i) Fabrics and patches. These are knitted fabrics that are used to repair ruptured veins and arteries. They are described as ultra-thin cardiovascular patches with tapered or non-tapered ends for handling, healing and hemostasis. These patches are sewn into a vein or artery to close a rupture. You advised that the patches and grafts are typically used to wholly replace a section of an artery or vein, and are used to restore normal functioning of the damaged vessel.

A review of the XXXXX was described as for use during carotid endarterectomy ^[xxvii]footnote 1 procedures. XXXXX is described as for use in the replacement or repair of arteries affected with aneurysmal or occlusive disease, but not as a coronary artery replacement. We understand that the patches are knitted and made of non-velour material. The fabrics are knitted or woven and made of velour material. The surgeon cuts them to size and they are indicated for cardiac and vascular patch grafting and designed to provide an initial blood-tight seal, enhanced tissue ingrowth and biocompatibility. The fabrics are also recommended for use in patients requiring systemic heparinization ^[xxviii]footnote 2 prior to, or during surgery.

(ii) Peripheral Grafts, Abdominal/Thoracic Grafts. Peripheral vascular grafts are designed to repair or replace peripheral arteries and to provide vascular access. They are flexible tubes, in the shape of a vein or artery which they are to replace, and are designed to be grafted into the arterial system to replace an existing damaged artery. They are used for peripheral vascular bypass procedures and vascular access procedures for dialysis. Abdominal and thoracic grafts are used to repair abdominal and thoracic vessels (e.g., intestines, thorax). The graft replaces the damaged portion of the vessel to return it to its normal shape and function. One product, XXXXX, is described XXXXX as being designed to repair or replace peripheral arteries.

You advised that peripheral grafts and abdominal/thoracic grafts are typically used to replace a section or an artery or vein, or an abdominal or thoracic vessel. These items are used to restore the normal functioning of the damaged vessel.

(iii) Detachable Coils. You advised that detachable coils are used to treat aneurysms. An aneurysm is described as an abnormal widening or ballooning (dilatation) of a portion of an artery; i.e., a balloon-like bulge in the blood vessel, related to weakness in the wall of a blood vessel. A sac is formed by the dilatation and filled with fluid or clotted blood, often forming a pulsating tumour. The detachable coil is made from platinum and it is threaded through a catheter through the artery into the bulge until it completely fills the space, cutting off the flow of blood into the aneurysm and preventing it from rupturing. The coil closes the opening from the blood vessel into the aneurysm, thus sealing off the aneurysm and allowing the blood to resume its normal flow through the blood vessel.

You referred to the "Brain Aneurysm Resources" Internet Website at [http://www.brainaneurysm.com/aneurysm-treatment.html] for more information. According to this Website, the detachable coils are used in embolization procedures. Embolization is an interventional radiology technique to block the flow of blood to a target area within the body. The "Brain Aneurysm Resources" Internet Website describes the use of detachable coils as follows:

"Surgery or minimally-invasive endovascular coiling techniques can be used in the treatment of brain aneurysms. ... Endovascular therapy is a minimally invasive procedure that accesses the treatment area from within the blood vessel.... In the case of aneurysms, this treatment is called coil embolization, or coiling. Endovascular treatment of brain aneurysms involves insertion of a catheter (small plastic tube) into the femoral artery in the patient's leg and navigating it through the vascular system, into the head and into the aneurysm. Tiny platinum coils are threaded through the catheter and deployed into the aneurysm, blocking blood flow into the aneurysm and preventing rupture. The coils are made of platinum so that they can be visible via X-ray and be flexible enough to conform to the aneurysm shape. This endovascular coiling, or filling, of the aneurysm is called embolization and can be performed under general anaesthesia or light sedation." ^[xxix]footnote 3

(iv) Embolics. Embolics are particles or agents that are injected into an artery and which block the flow of blood through the artery to a target area; i.e., embolization.

4. The insertion of detachable coils and the injection of embolic agents are alternatives to surgery. Both procedures are performed by interventional radiologists and interventional neuroradiologists using a microcatheter to deploy the detachable coils or embolic agents to a target area.

5. Detachable coil embolization is used to treat cerebral aneurysms and arteriovenous malformations. The procedure involves packing the aneurysm with soft platinum coils that fill the stretched and bulging section of blood vessel to seal off the aneurysm. The goal of the treatment is to prevent blood flow into the aneurysm sac by filling the aneurysm with coils. The coils are used to either block blood flow to the target area or to fill the aneurysm or fistula, thus reducing the risk of the aneurysm leaking blood or rupturing, or preventing further growth of the aneurysm or fistula by creating a blood clot to close off blood flow to the target area. An interventional neuroradiologist makes an incision in the groin through which a microcatheter is guided through the femoral artery to the target area. Once in place, coils are deployed through the catheter and into the aneurysm. Several coils (average of 5 to 6) are usually needed to embolize an aneurysm. The body responds by forming a blood clot around the coil blocking off the aneurysm. The coils are soft to conform to the shape of an aneurysm and are designed to remain anchored with the aneurysm or fistula and do not require eventual removal.

6. When treating very large inoperable aneurysms, the procedure may include placing a prosthesis such as a stent in the intracranial vessels. When the neck of the aneurysm is too wide, a stent is necessary to be placed in the parent vessel to hold the coils inside the body of the aneurysm. The stent acts as a barrier between the aneurysm and the parent vessel to ensure that the coils will not protrude from the aneurysm.

7. Our research indicates that embolic agents may be injected in many parts of the body, including the brain to block meningiomas tumors, the neck to treat abnormal connections between arteries and veins (arteriovenous malformations), the uterus to treat symptoms attributed to uterine fibroids including heavy menstrual bleeding, pelvic pain or pressure and urinary dysfunction, and the liver to block liver tumors. In addition, embolization with embolic agents is used to treat trauma victims with massive bleeding, to control hemorrhage after childbirth, to decrease blood loss prior to surgery and to treat tumors and aneurysms. For instance, when treating cancer patients, interventional radiologists use embolic agents to cut off the blood supply to the tumor, keep the chemotherapy drug in the tumor by blocking the flow to other areas of the body, deliver radiation to a tumor, or combine this technique with chemotherapy to deliver a cancer drug to the tumor.

8. Our research on embolic agents included XXXXX, which describes one product, XXXXX, which are packaged in prefilled syringes and are of "uniform size for matching the embolic to the vessel size and to enhance targeted embolization." These microspheres are delivered to a target area by means of injection through a microcatheter. The XXXXX explains that the microspheres are "available in a wider range of sizes, providing a choice in embolic size for different applications." These microspheres can be used for the embolization of hypervascular tumors, including leiomyoma uteri and arteriovenous malformations.

9. Dorland's Illustrated Medical Dictionary, 30th Edition, defines a "microsphere" as a "centrosome", which is defined as the "cell centre". Microspheres are a type of embolic agent and our research suggests that embolic agents vary widely and include substances such as chemicals and organic solvents and may be organic or biological in origin. Among the many substances used for embolization are methyl methacrylate, dimethyl sulfoxide, trisacryl gelatin, porcine gelatin, cellulose porous beads, and collagen microbeads. Further, we understand that microspheres used as embolic agents also vary and can include chemicals as well as biological or organic substances. Particles for microspheres or intra-arterial therapy include glass beads, resin-based and other polymeric microspheres, and microspheres of human serum albumin.

10. Embolic agents may be round or irregular in shape. Microspheres are round and come in different sizes to fit the blood vessel to block blood from getting to a tumour and include specially calibrated, spherical micro-porous beads made of an acrylic co-polymer (trisacryl), and cross-linked with gelatin. Irregular shaped embolic agents combine with a blood clot to block blood flow. We also understand that embolic agents have particular storage requirements; i.e., they must be stored in a cool, dry and dark place in their original syringe and packaging, and they must be used by the date indicated on the syringe label.

11. The delivery of an embolic agent to the target area involves matching the volume in the syringe with the same volume of an undiluted contrast solution, e.g., sterile saline. For instance, microspheres and contrast solution are mixed and then injected with the injection syringe. To inject the embolic agents, a small needle is used to puncture the skin next to a blood vessel. Then a microcatheter tube is placed in the puncture and threaded to the blood vessels close to the target area. Next, tiny particles or other agents are injected into a catheter. These agents travel through the catheter into the blood vessels that feed the target area, e.g., an area where there is a tumor, to block the blood flow to that area. By selectively blocking the target area's blood supply, the deprived tissue will either become devitalized or destroyed, e.g., the growth of the tumor can be stopped or the tumour may be destroyed.

Ruling Requested

You are requesting that supplies of the following medical products made by XXXXX fall within section 25 of Part II of Schedule VI and thus are zero-rated supplies:

•   Fabrics and patches;

•   Peripheral grafts and abdominal/thoracic grafts;

•   Detachable coils; and

•   Embolic agents.

Ruling Given

The supplies of the following medical products made by XXXXX fall within section 25 of Part II of Schedule VI:

•   Fabrics and patches;

•   Peripheral grafts and abdominal/thoracic grafts; and

•   Detachable coils.

Based on the facts set out above, we rule that the supply of embolic agents do not qualify as a zero-rated medical or surgical prosthesis under section 25 of Part II of Schedule VI.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is currently under objection or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Section 25 of Part II of Schedule VI describes the following:

"A supply of a medical or surgical prosthesis ... that is designed to be worn by an individual."

For purposes of administering this zero-rating provision, the CRA considers a medical or surgical prosthesis to be an artificial device that replaces a missing part of the body, corrects a physical deformity or malfunction, or supports a weak or deformed part of the body. This interpretation includes externally worn devices as well as implanted devices that are worn internally. It is understood that the fabrics, patches, grafts and coils are artificial devices implanted within the body to replace a damaged part of the body or to correct a physical deformity of the body. The fabrics, patches and grafts replace a damaged section of an artery or vein and the detachable coils correct a physical deformity of an artery (dilatation of a portion of an artery) or correct abnormal connections between arteries and veins (arteriovenous malformations). Accordingly, the fabrics and patches, peripheral grafts, abdominal/thoracic grafts and detachable coils fall within the meaning of a medical or surgical prosthesis worn by an individual.

It is the CRA's view that embolic agents do not fall within the interpretation of a medical or surgical prosthesis worn by an individual as they do not replace a missing part of the body, correct a physical deformity or malfunction, or support a weak or deformed part of the body. Rather, embolic agents are used to embolize; i.e., seal off, any given area in the body to deprive that area of blood flow for any number of reasons. For instance, embolic agents may be used to block the flow of blood to a tumor in order to contain or destroy the tumor, to treat trauma victims with massive bleeding, to control hemorrhage after childbirth, and to decrease blood loss prior to surgery. In addition, embolic agents may be used to deliver drugs to tumors.

Further, embolic agents cannot be identified by any particular particle or substance; i.e., properties used as embolic agents vary and could include biological or organic substances. Embolic agents are administered into the body by means of an injection through a syringe through a microcatheter to a target area. As embolic agents are substances injected into the body, they cannot be described as a device that is worn by an individual. In summary, it is the CRA's view that embolic agents are not supplies described in section 25 of Part II of Schedule VI.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-6761.

Yours truly,

Susan Eastman
Municipalities and Healthcare Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2006/12/05 — RITS 85222 — Delivery - Agent of the Vendor