Telephone #: (613) 954-8585
Fax #: (613) 990-1233
XXXXX File #: 11680-7(glr)
XXXXX s. 142 Dept. S423 Sch. VI/V/10
XXXXX August 28, 1996
Dear XXXXX
I refer to your facsimile message of July 17, 1996, addressed to Mr. Garry Ryhorchuk of my staff, concerning the proposed amendments to the Excise Tax Act (Act) relating to the place of supply rules in subsection 142(1) of the Act and the drop-shipment rules in subsection 179(1) of the Act. These proposed amendments are contained in the Notice of Ways and Means Motion dated April 23, 1996. During your telephone conversation with Mr. Ryhorchuk on August 20, 1996, both you and XXXXX, agreed that it was not necessary to provide an interpretation regarding the proposed amendment to subsection 179(1).
In your message you presented the following scenario:
• A Canadian registered supplier grants, to an unregistered non-resident, a universal non-transferable license for the right-to-use software in the recipient's commercial activities, wherever they may be. The related software is shipped to XXXXX[.] You then asked the following questions related to the above scenario:
(a) Is the fact that the software is shipped to XXXXX sufficient for the supplier to apply the zero-rated treatment?
(b) In the negative, what are the responsibilities of the supplier to ascertain that the software will not be used in part in Canada? e.g., written confirmation by the recipient or other requirements.
(c) Is the supplier relieved of his responsibilities to collect the tax if a certificate is accepted in good faith but the recipient was using the software in Canada at the time the license was granted or at a later date?
Interpretation Given:
Before answering your questions, I would like to point out that the place of supply rules in section 142 do not determine the tax status of a supply. The rules in subsection 142(1) deem supplies to be made in Canada. These supplies could be subject to the Goods and Services Tax (GST) at 7% or 0% imposed under section 165 of Division II of the Act, or exempt supplies as outlined in Schedule V to the Act. The rules in subsection 142(2) deem supplies to be made outside Canada and not subject to the tax under Division II.
I will now answer your questions in the order presented:
(a) A universal non-transferable licence for the right to use software is a supply of intangible personal property. You state that the software will be used in the non-resident's commercial activities, wherever they may be. As it appears that the supply of the intangible personal property may be used in whole or in part in Canada, the supply is deemed to be made in Canada under the provisions of proposed subparagraph 142(1)(c)(i). The fact that the software is shipped to XXXXX is irrelevant when determining the place of supply of intangible personal property.
(b) Although a recipient may never use the intangible personal property in Canada, the supply can still deemed to be made in Canada under the provisions of subparagraph 142(1)(c)(i) if the intangible personal property may be used in whole or in part in Canada.
(c) A certificate that states that the recipient will not use the intangible personal property in Canada is of no benefit when determining the place of supply under subparagraph 142(1)(c)(i).
A universal non-transferable licence of a right to use computer software is considered as a supply of a right to use intellectual property. Provided the supply is made to a non-resident person who is not registered for GST purposes at the time the supply is made, the supply may be zero-rated under the provisions of Schedule VI, Part V, section 10 to the Act.
It is the responsibility of the Canadian registered supplier to determine the residence and registration status of its customer. Appendix B of GST Memorandum 300-3-5 (Exports), a copy of which may be obtained from your local Revenue Canada Tax Services Office, describes the documentation that the Department will generally consider as proof that the customer is both a non-resident and is not registered.
The foregoing comments represent our general views with respect to the proposed amendment to the Act relating to the subject matter of your letter. These comments are not rulings and, in accordance with the guidelines set out in Section 1.4 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.
If you have any questions or require further information, please contact Mr. Ryhorchuk at (613) 952-6743 or Mr. Randy Nanner at (613) 952-8810.
Yours sincerely,
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
Policy and Legislation Branch
| c.c.: |
R. Nanner GAD #: 3160(GEN)
G. Ryhorchuk |
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