Telephone: (613) 954-8585
Fax: (613) 990-3602
File: 11680-5-3(kpm)
ss. 132(1)(b), 132(3), 145(1) sec 7/V/VI
XXXXX August 30, 1995
I refer to your letter of January 24, 1995, requesting confirmation of several key points in your reply to XXXXX In addition to reviewing the contents of the previous correspondence, Karl Marten of my staff contacted the writer, XXXXX , for additional information.
Most of the additional information centered on the activities on the permanent establishment of the general partner in the U.S. and the structure of the partnership:
The permanent establishment consists of an office in XXXXX and several employees who handle the day-to-day activities of the general partner.
The telephone number and mailing address of the general partner are at this fixed place of business. There is also a long-term lease in effect for this particular office.
The general partner pays U.S. corporate income tax as a resident corporation.
The limited partnership pays U.S. taxes as a resident partnership and is subject to U.S. regulations concerning limited partnerships.
The limited partnership offers its partnership units in Canada, and is therefore subject to XXX
Notwithstanding the fact that the general partner is incorporated in XXXXX the general partner does not maintain any type of presence in Canada.
All business decisions respecting the limited partnership is made through the office in XXXXX
All contracts and other business agreements respecting the limited partnership and the corporate general partner are made through the office in XXXXX
The general partner maintains bank accounts in the U.S. through the office in XXXXX
The books and records, while kept in Canada (because they are done by a third party), follow U.S. accounting rules.
The management services indicated in Annex A of the original letter are not done by the general partner, but rather, subcontracted out to a third party.
The general partner is solely responsible for all management services.
The management services are supplied to the general partner (any contractual arrangements entered into are entered into by the general partner and the third party). Payment of the services by the limited partnership is made "for the sake of expediency" and does not limit or absolve the liability of the general partner.
Comments
You state that, pursuant to subsection 145(1) of the Excise Tax Act (ETA), the general partner's activities are deemed to be activities of the limited partnership and cannot be considered to be activities of the general partner in its own right.
It is our view that the supply of the services by the general partner to the partnership is a taxable supply of services (provided the services supplied are not an exempt supply pursuant to Schedule V to the Act) and not provided as a result of "... an activity engaged in by a person as a member of a partnership ..." as is deemed by subsection 145(1) of the Act.
The services supplied by the general partner in these instances are provided separate and apart from any activities the general partner may engage in "as a member of a partnership".
With respect to residency, the scheme of the GST legislation suggests that a resident person with a permanent establishment (p.e.) outside of Canada is to be regarded as a resident for GST purposes generally, notwithstanding subsection 132(3). The general partner is deemed to be a resident of Canada under paragraph 132(1)(a) as it is incorporated under the laws of the province of XXXXX
The general partner has a fixed place of business XXXXX office) in the U.S. through which it makes supplies. The general partner then, has a permanent establishment in the U.S., and, under subsection 132(3), can be deemed a non-resident in respect of the activities that it carries on through the XXXXX office.
The activity that the general partner makes is one of a supply of management services to the limited partnership. Subject to subsection 143(1), these supplies are deemed to be made outside Canada. (The general partner does not carry on a business in Canada nor is it registered under Subdivision d of Division V.)
Residency of a partnership, including a limited partnership, is determined by paragraph 132(1)(b). All the members of the limited partnership are residents of Canada. However, as they are limited partners only, they do not manage nor do they exert control of the partnership. Management and control of the limited partnership is provided by the general partner through the non-resident p.e. Because management and control is provided by a non-resident, under paragraph 132(1)(b), the limited partnership is deemed not resident in Canada.
You requested our comments on whether the management services constitute a single or multiple supply — whether or not the management services constitute a single or multiple supply is a question of fact. Policy P-077, Single and Multiple Supplies, provides guidance on this matter. It asks us to consider the following factors:
Are the items listed in Annex A inputs or supplies in their own right?
Many of the items listed can be considered supplies (e.g. appointing auditors, maintaining books and records, preparing and mailing out notices of all meetings). Some services provided can be considered supplies but normally would be considered inputs, or rather, tasks or duties to be performed - engaging professional advisors to assist in the offering and carrying on of the partnership business, dealing with distributors, operating any bank accounts, determining when cash on hand will be distributed, paying all costs and expenses of the partnership.
How many suppliers and/or recipients are involved?
From the information available, it appears there is one person supplying the services and one recipient.
What are the provisions of the contract or agreement and terms of the invoice?
There is no written contract in place, although there must be some type of verbal agreement as to what is expected of the provider of the management services. In the absence of a specific agreement, the better view may be that there is only one supply being made: that of managing a business. Various elements (tasks) may need to be completed by the supplier, but those elements, even though they may in themselves be considered a supply, may be secondary. To determine if these elements are secondary or if each individual element can be considered a supply, we have to consider several additional questions:
If the general partner did not receive all of the elements would each, in itself, be, in the context of this transaction, of any use to him?
No, each individual element, supplied on its own, would not be of any benefit to the general partner. Several blocks of elements, such as collecting and distributing revenues, and maintaining books and records of the limited partnership, or borrowing funds if required, paying all costs and expenses of the partnership, and operating any bank accounts, when provided as a block, may be useful.
Is the provision of a particular element contingent on the provision of another element?
Yes, for example, the arranging for preparation and forwarding to each limited partner of all necessary income tax reporting information on a timely basis cannot be completed unless the books and records of the partnership are maintained.
Is the general partner made aware of the specific elements (in detail) that are part of the package?
No, the general partner is not made aware of the specific elements that were completed in a particular period. For example, he is not made aware of how many times the bank accounts were accessed, or given specific reports on what cheques were paid (to who, for how much, and when they were paid). It was not discussed between Karl Marten and XXXXX if the general partner received a management report from the supplier, but a management report would, at best, be a summary of the activities of the supplier and would not be specific enough to answer "yes" to this question.
After consideration of all the criteria, the supply of management services should best be considered a single supply.
You asked that, if the services consist of a single supply, does the supply relate to the limited partnership as a resident or to the limited partnership's activities in the U.S. as a non-resident and how do we determine this?
The supply of management services made by the resident third party is made to the general partner and not to the limited partnership, even though the limited partnership may pay for the services directly. Specifically, the supply is made by the general partner's permanent establishment in the U.S.
These services may be zero-rated under Schedule VI, Part V, section 7, as the services would not be considered to be for consumption, use or enjoyment in Canada. The management services listed in Annex A are not advisory, consulting or professional services.
In light of the new information, a revised letter should be sent to XXXXX He should be reminded though, that these comments are not rulings, and he should be encouraged to provide sufficient additional information for a ruling to be written.
If you require any further information, please do not hesitate to contact Mr. Karl P. Marten of my staff at (613) 952-2214.
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
Policy and Legislation Branch
GAD: 1081(GEN)
| c.c.: |
Randy Nanner
Karl P. Marten XXXXX |
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