File : 11650-1 (gp)
Section 169, Sch. VI-Pt. V
Dear XXXXX
This letter is further to our meeting of September 7, 1995, and your facsimile transmission received in our office on August 25, 1995, concerning the application of the GST to transactions involving independent exporters of motor vehicles.
As was stated at the meeting, we agreed to provide a letter setting out our interpretation of the application of the GST, and the entitlements to input tax credits (ITCs), for a typical transaction of a sale of a motor vehicle from a dealer to an independent exporter through an intermediary.
Statement of Facts:
1. A company, a GST registrant, is a wholesale motor vehicle broker specializing in exporting new vehicles from Canada to the United States and Europe (the "Exporter").
2. Because the suppliers of the vehicles (the "Dealers") are not prepared to supply vehicles that are intended for export, the exporter acquires vehicles from the dealers through the use of intermediaries (the "Intermediary").
3. The Exporter attests that the vehicles are exported as soon as they are received from the Dealers and are not acquired for consumption, use or supply in Canada nor are the vehicles processed, transformed or altered in Canada prior to exportation.
4. In many, but not all situations, the Exporter has an agreement (the "Agreement") between itself and its Intermediaries that allows the Exporter to use the Intermediary's name to purchase vehicles. Other information about the Intermediary, as may be necessary to complete the purchase of the vehicle, may be used by the Exporter in the purchase of the vehicles from the Dealer. The Agreement states, among other things, that the Intermediary does not have, nor will have at any time, any legal or beneficial interest in the vehicles purchased and the Exporter agrees to indemnify the Intermediary against any liability concerning the purchase of the vehicles. The Intermediary is paid a fee for the use of his name to purchase the vehicles.
5. The Agreement also states that the Exporter is responsible for the negotiations, payment and delivery of the vehicles as well as all other obligations as purchaser of the vehicle.
6. The Exporter normally pays for the vehicles by way of a bank draft delivered directly to the Dealer. The Intermediary is paid separately for the use of his name.
Additional Information
The statement of facts does not establish the registration or residency status of the Exporter. The principal focus will be on situations where the Exporter is registered for the GST. The residency status only becomes an issue when the Exporter is not registered for the GST and is applying for the non-resident rebate. Separate discussion will be made for situations where the Exporter is a non-resident who is not a registrant for purposes of the ETA.
In addition, since the Dealers are not prepared to acknowledge that the vehicles are being purchased for export, they either do not have, or cannot admit to have, evidence that the vehicles have been exported.
ISSUES RAISED:
On the basis of the aforementioned facts, the issues you have raised are:
1. Whether the Exporter is entitled to claim ITCs pursuant to section 169 of the Excise Tax Act (the "ETA") where the services of an Intermediary are engaged to purchase the vehicles on behalf of the Exporter.
2. Whether the export of the vehicles to the United States and Europe by the Exporter would be a zero-rated supply under Schedule VI, Part V, section 1 to the ETA.
DEPARTMENT'S POSITION:
For purposes of this interpretation, we assume that the foregoing facts fully describe the situation and that the conduct of the parties is fully consistent with those facts.
Principles applicable to the case
Section 169 of the ETA provides that, in order for a person to be eligible to claim an ITC in respect of the tax payable on a property or service, the following conditions must be met:
1. the property or service must be supplied to, or imported by, the person;
2. the person must be a GST registrant during the reporting period in which the supply or importation is made;
3. tax must be payable by the person in respect of the supply or importation, or be paid by the person prior to its becoming payable;
4. the property or services must be acquired or imported for consumption, use or supply in the course of the commercial activities of the person; and
5. the person must have obtained sufficient documentation to establish the eligibility for the ITC before the claim is made.
For the first condition, to determine whether a supply has been made to a person, the meaning of recipient must be considered. The definition of recipient under subsection 123(1) of the ETA provides that where consideration for a supply is payable under an agreement for the supply, it is the person liable under that agreement who is considered to be the recipient. Where no agreement has been made, the definition provides that it is the person liable to pay the consideration who would be the recipient. Finally, the definition provides that where no consideration is payable for the supply, it is the person who takes delivery (in the case of a sale); the person who has possession of the supply (in the case of supply other than sale); or the person to whom service is made (in the case of a supply of a service) who is considered to be the recipient.
Analysis
Two general scenarios have been identified relating to the acquisition of vehicles for export such as in this case. For reference purposes, there are three persons involved in these scenarios: the supplier (the Dealer), the Intermediary (the person whose name appears on the contract to purchase the vehicle from the supplier and who may or may not be a registrant for GST purposes) and the Exporter. A summary of each scenario follows:
1. The Intermediary is not active in the transaction and it is the Exporter who negotiates and signs the contract with the Dealer in the name of the Intermediary. It may also occur that the agreement of purchase and sale between the Dealer and the Intermediary may remain unsigned by the Intermediary such that there may not be a signed agreement of any kind for the transaction. There may or may not be a written Agreement between the Intermediary and the Exporter which allows the Exporter to use the Intermediary's name when the Exporter is contracting with the Dealer for the supply of a vehicle.
2. The second type of scenario is where the Intermediary takes part in the transaction with the Dealer. This scenario may be characterized in two different ways:
A The Intermediary actually negotiates and signs the contract with the Dealer. There may or may not be a written agreement between the Intermediary and the Exporter indicating an agency relationship between the two parties; or
B There are two separate supply transactions. The Intermediary purchases the vehicle from the Dealer on his own account (the first supply), and then the Intermediary supplies the vehicle to the Exporter (the subsequent supply).
Analysis of the Scenarios
In Scenario 1, the primary issue is determining whether the Intermediary or the Exporter is the recipient of the supply. The Intermediary is not acting as agent, but has simply allowed the use of his name in the transaction. If the Exporter fulfils the conditions as the recipient of the supply, that is, the Exporter may be disguising his identity but is otherwise the principal in the transaction with the supplier, then the Exporter would need to demonstrate that each of the conditions for claiming ITCs, as outlined previously, are met. If the conditions are met, then the Exporter would be entitled to claim the ITCs in question. One of these conditions is that the Exporter obtain documentary evidence to support the claim for ITCs. If the Exporter is unable to substantiate that he is the recipient of the supply, the Exporter would not be entitled to claim the ITCs.
Ident Exporter may be entitled to a rebate under subsection 252(1) of the ETA regardless of whether an Intermediary as described in scenarios 1 and 2 is used. The claimant must provide to the Department sufficient evidence that the vehicles have been exported and in the case of scenario 1, that the Exporter fulfils the conditions as the recipient of the supply, or in the case of scenario 2A, that the Intermediary is acting as an agent at law. For scenario 2B, the Exporter would clearly be the recipient of the second supply. If the Intermediary is registered, there would be an incidence of tax in the second supply and the Exporter would be entitled to a rebate of the GST paid. To receive the rebate, the Exporter would be required to file a General Application for Rebate of Goods and Services Tax (GST 189) with the Department. If the Intermediary is a non-registrant, there would be no incidence of tax in the second supply and the Exporter would not be entitled to a rebate of GST as they would not be considered the taxpayer for GST purposes.
Ident Exporter may be entitled to a rebate under subsection 252(1) of the ETA regardless of whether an Intermediary as described in scenarios 1 and 2 is used. The claimant must provide to the Department sufficient evidence that the vehicles have been exported and in the case of scenario 1, that the Exporter fulfils the conditions as the recipient of the supply, or in the case of scenario 2A, that the Intermediary is acting as an agent at law. For scenario 2B, the Exporter would clearly be the recipient of the second supply. If the Intermediary is registered, there would be an incidence of tax in the second supply and the Exporter would be entitled to a rebate of the GST paid. To receive the rebate, the Exporter would be required to file a General Application for Rebate of Goods and Services Tax (GST 189) with the Department. If the Intermediary is a non-registrant, there would be no incidence of tax in the second supply and the Exporter would not be entitled to a rebate of GST as they would not be considered the taxpayer for GST purposes.
For scenario 2A, the primary issue is also determining who is the recipient of the supply. If the Intermediary is acting as agent at law for the Exporter, then the Exporter would be considered to be the recipient and would be entitled to claim the ITCs in question provided the Exporter meets the other conditions for claiming ITCs, and in particular can produce the documentary evidence to substantiate the claim. It is a question of fact for each case whether the Intermediary is acting as agent. The Department would consider all evidence, including written agreements, how the monies involved in the transaction were transferred, ownership, possession or use of the vehicle, and any other factors that demonstrate the substance of the transaction.
Scenario 2B follows the standard supply — resupply situation. The first transaction would be between the Dealer and the Intermediary where the Intermediary would be the recipient who would be entitled to claim ITCs for the tax paid on the supply provided all the necessary conditions for claiming ITCs are met. The second transaction would be between the Intermediary and the Exporter where the Exporter would be the recipient who would be entitled to claim ITCs provided all the necessary conditions for claiming ITCs are met. Further, the Intermediary may be able to zero-rate the supply to the Exporter provided the conditions required by Schedule VI, Part V, section 1 to the ETA are met. The issue of whether the Intermediary would be required to be registered has not been addressed since in these cases the Intermediaries would generally be required to be registered.
Documentary Requirements
One of the conditions for claiming ITCs is that the claimant obtain sufficient documentation to establish the ITC claim before the claim is made. This condition would apply to all scenarios. Therefore, if the Exporter meets the condition of being the recipient of the supply, before claiming ITCs for the tax payable on the supply, the Exporter must have obtained sufficient documentation to support the ITC claim. This documentation could include the invoice issued by the Dealer, which would generally be issued in the name of the Intermediary pursuant to the agreement for the supply between the Dealer and the Intermediary. If it is determined that the Intermediary is acting as agent for the Exporter, then documentation issued in the name of the Intermediary, as agent, would be acceptable documentary evidence for the Exporter to claim ITCs. Although there would be no documentation connecting the Exporter with the actual supply from the Dealer, there may be other documentation to support that the Exporter paid for the supply or is otherwise involved in the transaction, e.g., a money order.
Ultimately, the Department must be satisfied that the combination of documentation available enables the amount of the ITC to be determined including the requirements of the Input Tax Credit Information Regulations to support the ITC claim.
Export Transaction - tax status
Schedule VI, section 1 to the ETA zero-rates a supply of tangible personal property (other than an excisable good) made by a person to a recipient (other than a consumer) who intends to export the property, provided certain conditions are met. One of these conditions is that the supplier be given acceptable evidence of export by the recipient.
Since in this case, the "recipient" does not supply evidence of export to the Dealer, the Dealer is unable to supply the vehicles on a zero-rated basis. Therefore, the provisions of Schedule VI, Part V, section 1 to the ETA would not apply to zero-rate the supply of the vehicle by the Dealer to the "recipient". The supply of the vehicle by the Dealer to the "recipient" would be subject to GST at 7%.
SUMMARY:
To summarize the information provided above, the Exporter may claim ITCs for the tax paid on the supply of the vehicles provided the Exporter can demonstrate that it is the recipient of the supply from the Dealer. If the Exporter is unable to meet this condition, or any of the other conditions for claiming ITCs, then the ITC claim will be denied. With respect to the export activity, since the Dealer does not have evidence that the "recipient" has exported the goods, the Dealer would be unable to meet the conditions of Schedule VI, Part V, section 1 to the ETA in order to zero-rate the supply
The foregoing comments represent our general views with respect to the subject matter of your letter. Unannounced proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set our in Section 1.4 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.
If you have any further questions regarding this policy, please contact your local tax services office located at XXXXX
Yours truly,
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
Policy and Legislation
GTP 2427 (GEN), 2331 (GEN)
c.c.: XXXXX
C. Robertson
G. Pepin
J. Fennelly
R. Wong
S. Leclaire
L. Bruchhaeuser
M. Matthews
G. Preston
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