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File 11690-8(mf) ss. 132(5)
XXXXX 132(2)
XXXXX 123(1)
XXXXX 240(1)
XXXXX
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Attention: XXXXX
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February 18, 1994
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I refer to your facsimile message of September 27, 1993, addressed to Ms Maxine Farrell of my staff, concerning the activities of an international shipping corporation.
The facts are as follows:
(1) A U.S. Corporation has a wholly owned Subsidiary (SUB) that is also incorporated in the U.S.
(2) SUB is engaged in the business of international marine shipping.
(3) SUB has rented office space in Canada to arrange vessels to export goods overseas (and to arrange goods to fill the vessels on the return trip).
(4) SUB enters into contracts with Canadian resident corporations and with non-resident corporations.
(5) Neither the SUB nor the parent U.S. Corporation are GST registrants.
(6) SUB makes zero-rated supplies in excess of $30,000 p.a.
(7) Parent makes well over the $30,000 threshold in supplies outside of Canada.
The information as presented raises the following additional questions:
(1) Is the SUB a broker?
(2) The term "registrants" implies that a conclusion has been reached regarding the requirement to register (see subsection 123(1) definition of registrant). Should the term "registered" be substituted?
(3) Are the supplies made in Canada? What is being supplied? Additional information detailed in the contracts is required.
(4) Is the SUB an international shipping corporation deemed resident in the country of incorporation (U.S.) for purposes of subsection 250(6) of the ITA?
Considering the Income Tax Act (ITA) treaties relative to international shipping operations and subsection 132(5) of the Excise Tax Act, the following questions were posed:
Question 1:
Given that the contracts are often "made in Canada", that an office is leased and staffed in Canada, does SUB have a permanent establishment in Canada and as a result is SUB deemed to be a resident pursuant to subsecton 132(2)?
Response:
Subsection 132(5) of the Excise Tax Act (Act) refers to subsection 250(6) of the ITA. Subsection 132(5) provides that an international shipping corporation which is deemed to be resident in another country for purposes of the ITA will also be deemed non-resident for purposes of the GST.
However, subsection 132(5) is subject to subsection 132(2) which deems a non-resident person having a permanent establishment in Canada to be resident for purposes of activities carried on through that establishment.
Therefore, an international shipping corporation (meeting the requirements of subsection 250(6) of the ITA) with a permanent establishment in Canada may be deemed to be resident in Canada in respect of, but only in respect of, activities of the person carried on through that establishment.
Consequently, it is necessary to determine whether or not the SUB has a permanent establishment in Canada.
The definition of "permanent establishment" is provided in subsection 123(1) of the Act.
In order to determine if the SUB has a permanent establishment in Canada pursuant to paragraph 123(1)(a), it is necessary to determine if the SUB has a fixed place of business through which the person makes supplies.
In order for a person to be regarded as having a fixed place of business, the concepts that may be applied are:
(1) "carrying on business" in a particular place
(2) something less than the concept of "carrying on business", in a particular place
XXXXX
In any case, further information respecting the nature of the activities carried on by the SUB through its Canadian office would be required in order for a determination to be made. As to the type of activities that should be used in making the determination, reference may be made to the guidelines to be applied in determining whether a person is "carrying on business" contained in the GST guide "Doing Business in Canada - A Guide for Non-Residents". Assuming the SUB has "a fixed place of business" in Canada, it would then be necessary to determine if the person is making supplies through the fixed place of business. Subsection 123(1) defines "supply" to mean:
"... subject to sections 133 and 134, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift, or disposition;"
Section 133 is relevant because the SUB enters into contracts with Canadian and non-resident customers.
Section 134 deals with the transfer of a security interest, and is not relevant in this particular case.
The facts presented indicate that the SUB is making supplies. The question that now arises is whether the supplies are being made through a fixed place of business. It is assumed that the supplies are in relation to the international movement of freight to and from Canada.
The phrase "through which the particular person makes supplies" in paragraph 123(1)(a) suggests that a supply must have some connection with the "fixed place of business". As such, the fixed place of business must have some role in making the supply.
Again, additional facts are required to determine if the office space rented by the SUB has a role in the making of supplies. For example:
What specific activities are carried on by the SUB in Canada?
Where are the contracts concluded?
If based on the facts, it is determined that the SUB has a permanent establishment in Canada, then as per subsection 132(2), the SUB shall be deemed to be resident in Canada in respect of activities carried on through that establishment.
Question 2:
Does SUB have to register for GST?
Response:
If we are able to conclude that a person has a permanent establishment in Canada, it will be required to register pursuant to subsection 240(1) of the Act by virtue of its commercial activities in Canada unless the person (non-resident) is a small supplier. If world-wide taxable supplies by the SUB exceed $30,000, registration would be required pursuant to subsection 240(1).
If, subsequent to a review of all relevant facts, we conclude that the SUB does not have a permanent establishment in Canada, then the SUB would be regarded as non-resident in respect of all of its activities. However, if the SUB is determined to be "carrying on business in Canada", and world-wide taxable supplies exceed $30,000, registration would still be required pursuant to subsection 240(1).
Question 3:
Would SUB's registration force the parent corp to register?
Response:
Subsection 240(1) refers to a "person" who makes a taxable supply in Canada. Therefore, as the parent corporation and the SUB are two separately incorporated legal entities (persons), the SUB's registration would not affect the parent corporation's obligation to register. Please do not hesitate to contact Maxine Farrell of my staff at (613) 952-9204 should you require further assistance in this matter.
H.L. Jones,
Director,
General Tax Policy
Policy & Legislation
GTP: XXXXX
| c.c.: |
R. Allwright
M. Farrell
M. Bloom |
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