16 August 1994 GST/HST Interpretation 1994-08-16[1] - Customs Broker's Practice of Separately Invoicing Canadian Registrants

Dear XXXXX

This letter is in response to XXXXX E-Mail message of March 1, 1994, sent to Michael Matthews of my staff. XXXXX was concerned that a particular customs broker's practice of separately invoicing Canadian registrants for GST paid by unregistered non-residents was in contravention of the Excise Tax Act (the "Act").

Statement of Facts:

XXXXX provided the following fact situation:

An unregistered non-resident, XXXXX is listed as the importer of record on the B3 Customs form accounting for tax payable on the importation of certain goods.

XXXXX is shipping the goods to a Canadian registrant, XXXXX[.]

XXXXX retains ownership of the goods. XXXXX provides a processing service on the goods. XXXXX uses XXXXX to import the goods.

XXXXX invoices XXXXX for brokerage fees and customs duties pertaining to the shipment. XXXXX then invoices XXXXX for the Division III tax so that XXXXX can claim the ITC.

XXXXX informed Michael Matthews during a telephone conversation on April 18, 1994, that XXXXX acts on behalf of XXXXX who is identified as the importer of record on the Customs accounting documents. XXXXX also indicated that the tax payable under Division III was paid by XXXXX at the moment of importation on behalf of XXXXX[.]

Issues:

In your facsimile, you raised several issues. Is XXXXX entitled to claim an ITC pursuant to subsection 169(1) of the Act, or alternatively pursuant to subparagraph 180(a)(ii) of the Act? More specifically, can XXXXX be considered as having paid the Division III tax despite the fact that XXXXX invoiced XXXXX separately for a reimbursement of the GST? Finally, will the separate invoicing for the GST by the customs broker be disallowed based on the same rationale which prevents insurance companies from invoice splitting?

Our Response:

To be entitled to an ITC in respect of Division III tax, the person must be the de facto importer of the good (i.e., the person who caused the goods to be imported). Although the person listed as the importer of record on the B3 provides prima facie evidence that the person is the de facto importer, such evidence can be reversed through other evidence. Accordingly, a person who is listed as the importer of record may in certain cases not be entitled to the ITC. This treatment applies to both ITC claims pursuant to the general rule under subsection 169(1) of the Act and to ITCs claimed by a registrant for the purposes of making a taxable supply of a commercial service under subsection 169(2) of the Act.

In this case it appears that XXXXX is both the importer of record and the de facto importer. Since XXXXX is not a registrant, XXXXX cannot claim the ITC. Moreover, since XXXXX is not the de facto importer, XXXXX is also prevented from claiming claim the ITC under subsections 169(1) or 169(2) of the Act. However, XXXXX may be entitled to an ITC by reason of section 180 of the Act.

Subsection 180(1) applies in cases where an unregistered non-resident vendor is the importer of record in respect of goods to be supplied and delivered to a registrant in Canada. More specifically, subparagraph 180(a)(ii) of the Act applies where an unregistered non-resident has paid tax under Division III in respect of tangible personal property where the non-resident has caused the physical transfer of the property to the resident for the purpose of having the resident making a taxable supply of a commercial service in respect of the property to the non-resident person. In this case we assume that the processing service made by XXXXX would constitute as a commercial service. Therefore, if XXXXX provides XXXXX with satisfactory evidence that GST has been paid in respect of the importation of goods, XXXXX is deemed to have paid the tax and is able to claim the related ITC under section 180 of the Act.

In general, the person who is considered to have paid tax, whether or not that person is the de facto importer, is the person indicated as the importer of record on the B3 Customs form. In this case, the person who paid tax is XXXXX regardless of the fact that the customs broker XXXXX separately invoiced the resident XXXXX for such tax. Specifically, XXXXX was acting, as a customs broker, on behalf of XXXXX when it paid the division III on importation. Accordingly, XXXXX is considered as having paid the tax.

Pursuant to paragraph 169(4)(a), a registrant may not claim an ITC in respect of an acquisition or importation of property for a reporting period unless, before filing the return for which the ITC is claimed, the registrant has obtained sufficient evidence in such form containing such information, as will enable the amount of the ITC to be determined, including any such information as may be prescribed by regulations. In order to substantiate the ITC claim the registrant must provide satisfactory evidence that the conditions outlined in section 180 have been satisfied. These conditions are:

the non-resident, non-registrant has transferred the physical possession of the property to the resident for the purpose of having the resident supply a commercial service in respect of the property;

tax has been paid under Division III of the Excise Tax Act in respect of the importation of the property by the non-resident.

A copy of the B3 Customs Coding Form will be considered sufficient evidence for purposes of paragraph 169(4)(a) and subparagraph 180(a)(ii) of the Act. The non-resident must be indicated as the importer of record on the B3.

An agreement in writing between the supplier and the recipient of the commercial service, or other relevant documents which will provide sufficient evidence in determining the identity of the supplier and recipient of the commercial service and verify that the non-resident caused the transfer of the physical possession the goods to the resident will also constitute as sufficient documentary evidence.

Where a non-registrant, non-resident distributes products to more than one resident registrant, the provision of the B3 may not necessarily provide adequate information to substantiate the claiming of an ITC. For example, when a non-registrant, non-resident importer distributes goods to a number of registrants, there may not exist separate B3 Customs Coding Forms for each transaction. Therefore, in addition to the B3 Customs Coding Form, in order to determine the amount of the ITC, it will be necessary for the registrant to obtain a statement from the importer of record indicating the amount of tax paid on the respective goods delivered to the said registrant. Such a declaration must indicate the corresponding B3 Custom Coding Form transaction number.

In her E-Mail message, XXXXX made a reference to the Department's policy which does not allow ITC claims in the case where a person is only invoiced for the GST. However, this policy only applies to domestic supplies in respect of which tax is payable under Division II of the Act pursuant to subsection 165(1) of the Act.

In contrast to Division II tax, Division III tax is paid directly to the Crown. The liability to pay tax on imported goods is based on the importation, or other conditions provided by the Customs Act, whereas the liability to pay Division II tax is based on the recipient of the supply. Consequently, the rationale which prevents invoice splitting and ITC entitlement for Division II tax is not relevant to the application of Division III tax or for the application of 180(a)(ii) of the Act.

If you have any question, please do not hesitate to contact Raymond Labelle at (613) 952-8815.

H.L. Jones
Director
General Tax Policy
Policy and Legislation/GST

XXXXX

Fax: (519) 250-0795