9 August 1994 GST/HST Interpretation 11640-3(glr)[1] - Services Provides to Unregistered Non-residents

                                                                        Telephone: (613) 954-8585
Fax: (613) 990-1233

I refer to your letter of November 29, 1993, addressed to Mr. Robert Allwright of my staff, and the subsequent meeting held in your office on December 8, 1993, with representatives of XXXXX concerning the application of the Goods and Services Tax (GST) to the services XXXXX provides to unregistered non-residents. Please accept my apologies for the delay in responding to your letter.

XXXXX supplies various types of services to its non-resident clients, as follows:

1. Promote and extend sales of spirit and wine products throughout Canada to all customers and potential customers and make all reasonable efforts to obtain orders.

2. Solicit sales and maintain listings for the products with various liquor boards.

3. Recommend product stocking quantity requirements.

4. Acquire marketing space from the liquor boards to promote the products.

5. Outline the marketing strategies and cost requirements for an advertising and promotion program.

6. Following the approval of the marketing plan by the non-resident clients, contract with media for marketing, advertising and promoting the products to Canadian customers based on an annual budget approved and paid for by the non-resident clients.

7. Inform the non-resident clients of any infringement of trademark, trade name, copyright design, etc., and assist in legal proceedings which may be taken as a result of such infringement.

In my letter of May 13, 1993, addressed to Ms. XXXXX, Interpretation and Services, v District Excise/GST Office, I advised that XXXXX supplies of soliciting, promoting, protecting and arranging sales of the products throughout Canada (items 1, 2, 3, 5 and 7 above) were primarily for consumption, use or enjoyment in Canada. As a result, these services could not be zero-rated under Schedule VI, Part V, section 7 to the Excise Tax Act (Act). I also advised that, if XXXXX[']s were an agent of its unregistered non-resident clients, the supplies outlined in 4 and 6 above could qualify for zero-rating under Schedule VI, Part V, section 8 to the Act, because the supplies would be considered to have been made to the unregistered non-residents. I understand that it has now been determined that XXXXX is not an agent of its unregistered non-resident clients.

The status of the services XXXXX provides to its non-resident clients has been reviewed. In effect, XXXXX supplies two types of services to non-residents, i.e., sales representative services and advertising (including promotional) services. The status for GST purposes of these services is discussed below.

Sales Representative Services

The services supplied by XXXXX, as outlined in items 1, 2, 3 and 7 above, may be classified as sales representative services.

The Department has not been assessing the GST on supplies by sales representatives for the period January 1, 1991 to October 31, 1992 (Audit Directive 93-20 dated November 20, 1993).

XXXXX[.] It should be noted that this policy is limited to circumstances where the requirements in Schedule VI, Part V, paragraphs 5(a) or (b) are met. That is, the representative's services of soliciting must be in respect of a zero-rated export supply to the non-resident or a supply made outside Canada by or to the non-resident.

Advertising and Promotional Services

XXXXX acquires inputs related to advertising and promotion (i.e., creative and production work, media buys, marketing space, etc.) from other suppliers. These inputs are used by XXXXX to advertise/promote its non-resident clients' products. XXXXX also performs other services related to advertising, such as outlining marketing strategies for an advertising and program. These services, which are outlined in items 4, 5 and 6 above, may be classified as advertising services. Provided the non-residents are not registered, these services may be zero-rated under the provisions of Schedule VI, Part V, section 8 to the Act.

The inclusion of the services outlined in item 5 as advertising services represents a change from my letter of May 13, 1993. It is felt that these services, which outline the marketing strategies and cost requirements for an advertising and promotion program, are more correctly classified as advertising services.

Advisory or Consulting Services

Industry representatives have indicated that there is often a third type of service which is supplied to unregistered non-residents. This service may be categorized as an advisory or consulting service. For purposes of XXXXX please refer to item 7.

Although the services outlined in item 7 have been classified as sales representative services, it may be that the services could qualify for zero-rating under Schedule VI, Part V, section 23 to the Act as advisory or consulting services if they were regarded as a separate supply. The services would be considered to be in respect of intangible personal property (i.e., trademark, trade name, etc.) and not tangible personal property.

Based on the above information, you should be in a position to revise the preliminary audit assessment of XXXXX. In addition, it would be appropriate to advise XXXXX of the revised interpretation concerning the services it supplies to non-residents. The audit, of course, cannot be finalized until such time as the Department of Finance makes an announcement concerning the zero-rating of the services of sales representatives and if the zero-rating will be retroactive.

If you have any questions or require further information, please contact either Mr. Allwright at (613) 952-8810 or Mr. Garry Ryhorchuk at (613) 952-6743.

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