Our File: XXXXX
September 15, 1995
Dear XXXXX
Thank you for your letter of June 14, 1995, concerning the application of the GST to supply of newspapers by the XXXXX. Please accept my apologies for the delay in our response.
In your letter you make reference to the meeting held on May 9, 1995, with Mitch Bloom and Lalith Kottachchi of my staff. At that meeting further information was requested from you relating to the above subject matter. You have previously provided us with a copy of Schedule "A" to the Notice of Objection filed by your client, the XXXXX
The main question that has been raised in the case of the supply of newspapers by newspaper publishers (hereinafter referred to as the "Newspapers") is who should be considered the supplier of newspapers to the subscribers where carriers are used by the Newspapers (e.g. XXXXX ) to distribute their newspapers to the subscribers. I understand that the purpose of May 9th meeting was to discuss the arguments presented in the above Notice of Objection and to explore the possibility of finding a policy or legislative solution that is acceptable to both the Department and the industry (i.e. Newspapers).
For a variety of reasons it is important for the Department as well as the Newspapers to look for an industry-wide solution to the question raised. The alternative is to look at each Newspaper separately and individually with the assumption that each case is unique and thus be treated accordingly by interpretation and services and audit units in the field. From the Department's point of view in this instance, the latter may prove to be a somewhat cumbersome exercise that has potential to produce inconsistent applications of the GST in relation to the supply of newspapers across Canada.
There are other reasons for the Department to look for an industry-wide solution to the questions raised. First, a better understanding of the activities and practices used in the industry could enable one to analyze the form and substance of agreements entered into by a particular Newspaper in a much wider context. Second, the questions arising out of the transactions referred to in the XXXXX case are common to assessments or proposed assessments in respect of some other Newspapers.
You have indicated at the meeting that, in your estimation, there are over 100 daily newspapers in the country who use various methods (e.g. dealers, agents, carriers, etc.) of distribution to sell their papers. Furthermore, the carriers are utilized differently by some Newspapers in particular locales (e.g. carriers are used by the Newspaper or wholesale distributors or by both). Most of these XXXXX are members of the XXXXX who had made representations in the past to the XXXXX on various issues involving the application of the GST to the XXXXX. I understand that you are currently involved in discussions with the XXXXX on GST matters and are willing to assist the Department in gathering information on activities and practices used in the industry. I also understand that you have agreed to discuss our views on the matter (more specifically our desire to apply the GST consistently across the country) with the XXXXX and other concerned parties.
The following information would be useful to the Department to identify the fact patterns associated with the distribution of newspapers across the country where carriers are used.
We have identified three main activities of Newspapers where different methods are used:
1. Solicitation of subscribers.
2. Distribution of newspapers
3. Collection of subscriptions
1. Solicitation of subscribers
New subscribers
Although the methods used to attract new subscribers may vary from one Newspaper to another, from one region to another, etc., we have identified three methods of solicitations as useful for the purposes of determining whether the Newspaper or carrier is making the supply to the subscriber.
(a) Direct solicitation by the Newspaper (e.g. newspaper advertisements, direct mail, telemarketing, etc.).
(b) Indirect solicitation through the carriers where carriers do not identify themselves as selling the newspapers.
(c) Solicitation by the carriers where carriers identify themselves as selling the newspapers.
Question
Out of total number of new subscribers each year what percentage of subscribers would fall into those three categories? Are there other methods of solicitation which would be relevant to consider?
Subscription renewals
Most newspapers send out notices to subscribers. Generally, such notices may fall into one of the following categories:
(a) An invoice issued by the publisher as the vendor of the newspaper.
(b) An invoice issued by the publisher indicating that it has been issued on behalf of the carrier who is the vendor of the newspaper.
(c) A reminder notice issued to the subscriber prior to the expiry of a subscription giving the subscriber options of renewing it.
(d) A reminder notice issued to the subscriber without mentioning the options of renewing subscription.
Questions
(i) In terms of number of subscribers and amount of total revenue, what percentage of subscribers are covered by each of the above noted notices?
(ii) How successful is (in terms of invoking renewal) each category of notices as a percentage of total renewals?
(iii) With respect to category (c) notices, what are the options (as a percentage of total notices successfully responded to in that category) taken by the subscribers?
(iv) With respect to category (d) notices, what is the method of payment chosen by the subscriber (as a percentage of total notices successfully responded to in that category)?
2. Distribution of newspapers
Generally, the methods of distribution of newspapers can be broken into two categories: wholesale sales and retail sales. The distribution of newspapers through carriers fall into the wholesale sales category.
Question
(i) Based on the total number of newspapers sold across Canada what is the percentage of newspapers distributed through carriers?
(ii) Based on the total number of newspapers sold across Canada, what is the percentage of newspapers distributed through carriers where the agreement entered into between the Newspaper and the carrier clearly disclose that the carrier is buying and selling the newspapers?
(iii) Based on the total number of newspapers sold across Canada, what is the percentage of newspapers distributed through carriers where the carrier as the vendor of the newspaper is clearly disclosed to the subscribers?
(iv) Where carriers are utilized to distribute the newspapers, how many (as a percentage of the total number of subscribers receiving newspapers through carriers) stops and starts would be affected by subscribers informing the Newspapers?
(v) Are there other methods of distribution which would be relevant to consider?
3. Collection of subscriptions
Newspapers use a number of methods to collect the subscriptions in situations where carriers are used to distribute the papers. They include:
(a) Paid-in-Advance accounts
Where subscribers pay their subscriptions in advance to the Newspaper such amounts are kept in paid-in-advance (PIA) accounts maintained by the Newspaper.
Questions
(i) What value do the PIAs represent as a percentage of total sales made through carriers?
(ii) What value do the PIAs represent as a percentage of total sales made through carriers where such amounts were collected on behalf of the carriers?
(iii) What value do the PIAs represent as a percentage of total sales made through carriers where such amounts were collected on behalf of the carriers where the Newspaper,
(A) discloses to the subscriber that the amount was collected on behalf of and for the benefit of the carrier?
(B) does not disclose to the subscriber that the amount was collected on behalf of or for the benefit of the carrier?
(b) Pre-authorized bank withdrawals
Newspapers encourage subscribers to pay their subscriptions through direct withdrawals from their bank accounts under a preauthorized bank withdrawal plan.
Question
(i) What value do the preauthorized bank withdrawals represent as a percentage of total sales made through carriers?
(ii) What value do the preauthorized bank withdrawals represent as a percentage of total sales made through carriers where such amounts were withdrawn on behalf of the carriers?
(i) What value do the preauthorized bank withdrawals represent as a percentage of total sales made through carriers where such amounts were withdrawn on behalf of the carriers where the Newspaper,
(A) discloses to the subscriber that the amount was withdrawn on behalf of and for the benefit of the carrier?
(B) does not disclose to the subscriber that the amount was withdrawn on behalf of or for the benefit of the carrier?
(c) Collections carried out by carriers
Carriers may collect the subscriptions in advance or at the end of each delivery period. Where the payments are by way of cheque, it could be made payable to the Newspaper or the carrier.
Questions
(i) Where the payments are by way of cheque,
(A) what percentage of them are usually made payable to the Newspaper?
(B) what percentage of them are usually made payable to the carrier?
(ii) In the case of paid-in-advance amounts collected by the carrier,
(A) how many Newspapers allow the funds to be retained by the carrier?
(B) how many Newspapers do not allow the funds to be retained by the carrier?
We are also interested in gathering information on the treatment of bad debts incurred as a consequence of the distribution of newspapers through carriers. For example, what percentage of such bad debts were in fact charged to and collected from the carriers rather than subscribers? We would also appreciate information on whether there were any lawsuits that have been launched against a Newspaper or a carrier as a result of an action by the Newspaper or the carrier.
You have already provided us with information on some of the questions raised above as they relate to the methods used by XXXXX . As explained earlier, information on a much wider scale involving most, if not all the newspapers, is required to identify fact patterns on a national level. Even estimates could be useful where the figures are not readily available. Once the fact patterns are identified and commonalties are established, the Department could advise all interested parties including yourself and the XXXXX, how the GST is applied under each method of distribution used by the Newspapers. This would enable the Department to apply the tax consistently on supply of newspapers across the country.
Again, thank you for all the assistance you have given to my staff in the past not only on this matter but also on numerous other occasions and hope the same continues in the future. If you have any questions or require additional information on this matter, please contact Mitch Bloom at (613) 952-8816.
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
2271(GEN)
c.c.: XXXXX Mitch Bloom (sign-off)
Imposition Team
Application Team
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